Publications

FIO Focus, Issue No. 24

Public Hearing on the Reports of the EU-U.S. Dialogue Technical Committee
10.15.12

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Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

Public Hearing on the Reports of the EU-U.S. Dialogue Technical Committees

On October 12, 2012, the Steering Committee of the EU-U.S. Dialogue held a public hearing in Washington, DC on the reports prepared by its Technical Committees. A second public hearing will be held on October 16, 2012 in Brussels, Belgium. Interested parties may also submit written comments to the Steering Committee by October 28, 2012. Issue 23 of FIO Focus provides an overview of the seven reports.

The Steering Committee requested public comments regarding:

  1. The accuracy of the reports.
  2. The completeness of the reports - whether the reports contain all key aspects of the insurance regulatory/supervisory regimes.
  3. Whether the key aspects identified in the reports are fairly classified as either commonalities or differences between the regimes.
  4. Whether the different supervisory regimes for each area of regulation should move towards convergence or improved harmonization and, if so, how should that convergence or harmonization occur?

The interested parties were quite uniform in praising the work of the Technical Committees. They noted that the analysis and reporting were factual and objective. Several mentioned that the reports are historical achievements. In addition to praise for the work, there appeared to be a fairly uniform request, from interested parties on both sides of the Atlantic, for harmonization of the regulation of reinsurance.

The comments provided to the Steering Committee at the hearing included suggestions for enhancing the technical reports with specific information. They also included suggestions for the future work of the Steering Committee. The following is a compilation of the comments.

Group Supervision

Information to enhance the reports:

  • The level of supervisory cooperation that exists among states, including the activities of the National Association of Insurance Commissioners' (NAIC) Financial Analysis Working Group.
  • The provisions of the Dodd-Frank Act that provide for the designation of nonbanks, including insurance companies, as Systemically Important Financial Institutions (SIFI) by the Federal Stability Oversight Council (FSOC) and for the enhanced supervision of SIFIs.
  • Dodd-Frank Act provisions designed to prevent excessive risk taking by financial institutions.
  • Features of the U.S. system that effectively constitute group supervisory techniques, including market discipline, financial ratings, financial reporting, hazardous financial condition laws and risk-focused examinations.
  • An explanation about the exclusions from group supervision that exist in the U.S.

General comments and suggestions for the future work of the EU-U.S. Dialogue:

  • The respective jurisdictions should be permitted to use their very different approaches to group supervision for a period of time. Following that, there should be an evaluation and possible modification of the approaches.

Solvency and Capital Requirements

Suggested report enhancements include:

  • Inclusion of the adoption of the Risk Management and Own Risk and Solvency Assessment Model Act in the U.S.
  • A comparison of the risks considered in the Solvency II standard formula and those risks included in the Risk Based Capital (RBC) formula.

Reinsurance and Collateral Requirements

Suggested report enhancements include:

  • Information about the current regulation of reinsurance, including current registration and collateral requirements in both the U.S. and EU.
  • Clarification of circumstances under which 100% collateral funding would be required under the Credit for Reinsurance Model Act.

General comments and suggestions for the future work of the EU-U.S. Dialogue:

  • U.S. and EU reinsurers should not be required to post collateral when trading in each other's jurisdictions.
  • The authority under the Dodd-Frank Act to enter into international agreements and similar authority within the EU Reinsurance Directive should be used to develop uniform collateral requirements, create a harmonized framework for reinsurance regulation and end discrimination.
  • The report states that 11 states have enacted the Credit for Reinsurance Model Act in the U.S.; however, only four have fully implemented the rules.

Supervisory Reporting, Data Collection and Analysis and Disclosure

Suggested report enhancements include:

  • Information about data standards used by the insurance industry in the U.S. and EU and those currently used by the NAIC. This should include an explanation as to whether those data standards can be harmonized with the centralized database being developed to support the European Insurance and Occupational Pensions Authority (EIOPA).

General comments and suggestions for the future work of the EU-U.S. Dialogue:

  • The jurisdictions are far apart with respect to the collection and analysis of data. Current efforts to develop common data standards and systems should be supported.

Supervisory Peer Reviews

Suggested report enhancements include:

  • Include the tools that are available to the NAIC and that result in consistent application of rules across the U.S., including changes to the annual statement blank and accreditation standards.

General comments and suggestions for the future work of the EU-U.S. Dialogue:

  • Concerns that the accreditation system in the U.S. is not binding and that the U.S. system continues to be discriminatory and is not uniform.

Other Comments and Suggestions

  • Third countries such as Bermuda should also be considered by the Steering Committee.
  • The Steering Committee's actions could be sequenced. The most common suggestion was to begin with reinsurance.
  • The EU and U.S. are in a position to influence the development of international standards by harmonizing their respective regulatory systems.
  • A recommendation to continue the dialogue to catch any additional gaps, but to not delay decision making or create trade barriers.
  • The U.S. system should be deemed equivalent under Solvency II because of the similarities shown in the technical reports.
  • Supervisory colleges and the implementation of the International Association of Insurance Supervisors' (IAIS) Insurance Core Principles will improve international cooperation and coordination.
  • Global and initiatives, such as the IAIS's Multilateral Memorandum of Understanding and the International Monetary Fund's Financial Sector Assessment Program should be leveraged when developing methods to harmonize the EU and U.S. systems.
  • The EU-U.S. Dialogue should be linked with other transatlantic dialogues including Transatlantic Economic Council's High Level Working Group on Jobs and Growth. (An overview of this working group is provided in Issue 7 of FIO Focus.)

Third Meeting of the Federal Advisory Committee on Insurance Set for November 14th

The Federal Advisory Committee on Insurance (FACI) will hold its third meeting on November 14, 2012, at the U.S. Department of the Treasury in Washington, DC. The meeting announced in the October 11, 2012, edition of the Federal Register indicated that the FACI will discuss the reports prepared by the Technical Committees of the EU-U.S. Insurance Dialogue. The FACI has requested public comments regarding the technical reports.