"We applaud the work of the NAIC on this initiative," said Philipp Keller, head of the Ernst & Young Global Solvency II Task Force. "NAIC's goal to upgrade the current framework is entirely in line with the organization's historical commitment to be at the forefront of regulation and supervision."
The NAIC plan will compare the U.S. risk-based solvency system with Europe's proposed solvency directives, known as Solvency II, and analyze the effect that Solvency II might have on U.S. insurers, particularly with regard to capital requirements, accounting standards, group supervision, valuation issues, and reinsurance. The overhaul of Europe's solvency framework is scheduled for implementation across the continent beginning in 2012.
"Introduced in the early 1990's, the U.S. risk-based framework was state of the art," said Keller. "Modernizing U.S. regulations will lead to a more level playing field between U.S. and European insurers and to a convergence of regulatory requirements. This will also reduce opportunities for regulatory arbitrage and create a more transparent and competitive financial market."
The adaptation of the U.S. insurance solvency system will reportedly benefit both the world's largest insurance market and the global industry.
"An economic- and risk-based regulatory framework in the U.S. might well create efficiency gains not only for U.S. insurers, but also for the many foreign insurance groups that have business in the U.S.," said Matthew Clark, a member of the Ernst & Young Global Solvency II Task Force.
Ernst & Young maintains a Solvency II Web site that provides up-to-date information on the proposed regulations and commentary on the potential impact of this new framework.
For more information, visit www.ey.com/solvencyII .