The European Commission has issued a formal letter on Solvency II equivalence to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) indicating that it should “carry out equivalence assessments” on Switzerland, Japan and Bermuda. The assessments would determine if the regulations in those countries are sufficiently equivalent with the EU’s impending Solvency II regulations to allow them to write business within the EU.
The EC also gave CEIOPS additional guidance on handling the question of equivalency with regard to other countries, including the U.S., that are not EU members. It said: “The assessment of the third countries should include an analysis of the extent to which the criteria are fulfilled. It should examine the legislation in place, supervisory practices, implementation and application of that legislation within the third country’s supervisory regime.
“In addition, where a third country is in the process of making legislative amendments that will enter into force at the same time or before Solvency II becomes applicable, then these should be taken into account when assessing whether the criteria have been met. Subject to the discussions on the Omnibus II Directive, Solvency II will become applicable from 1 January 2013, and it is only fair that third countries are assessed looking at the solvency regime that will be in place as of this date.”
The U.S. was not in the first wave of countries, as its regulatory systems and procedures aren’t based on the same principles as Solvency II. In addition the presence of 50 different regulators greatly complicates the process. Both Sean McGovern, Lloyd’s general Counsel and the head of its North American operations, and Vasilis Katsipis, A.M. Best’s general manager for European composite and life reinsurance and emerging markets, have commented on the equivalency question for the IJ.
The Dodd-Frank financial reform act established a Federal Insurance Office (FIO), which has the power to preempt inconsistent state regulations, and might, given time provide a way for the U.S. insurance industry to be given equivalency status under Solvency II.”
The American Insurance Association expects U.S. equivalence concerns to be “treated under the transitional approach.” AIA Vice President and Associate General Counsel, David F. Snyder, issued the following statement: “While we would have preferred the US to be designated for first wave consideration along with Bermuda, Japan and Switzerland, we believe a transition regime could still work for us. “From the beginning we have always made the key point that trans-Atlantic insurance commerce is far too important to the public to be disrupted by the equivalence process and we continue to hope it will not be.”
He added that the decision [not to include the U.S.] “appears to recognize that reforms are still needed in the US insurance regulatory system. We are committed to working with everyone involved to create a US and global regulatory system that is both effective and efficient because such a system best serves the public.”
Sources: European Commission, American Insurance Association
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