AIA: Regulatory Harmonization Essential

The confluence of insurance regulatory reform at the international, federal and state levels was the topic of discussion before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity at a hearing entitled: “Insurance Oversight: Policy Implications for U.S. Consumers, Businesses and Jobs.”

American Insurance Association (AIA) President and CEO Leigh Ann Pusey, testifying on behalf of the organization as well the Financial Services Roundtable, expressed concern that efforts by American and European regulators to indentify systemically important financial institutions (SIFI) may overlap.

While the U.S. systemic risk designation efforts are led by the nascent Financial Stability Oversight Council created by the Dodd-Frank Act, the “global” SIFI or G-SIFI designation process is led by Financial Stability Board created by the G-20. Pusey said the parallel processes carried risk for insurers. “We must ensure that this process accounts for the unique nature of insurance and is fair, transparent and, above all, does not overtake Dodd-Frank implementation efforts,” she said. “It is critical to note the insurance industry emerged from the recent financial crisis safe and strong. This resilience is a testament to the industry’s business model and its regulatory standards and this must be taken into account in any determination process.”

Another risk for U.S. insurers, Pusey said, was whether the United States will be granted equivalency under the third-country equivalence process contained within the European Union’s Solvency II framework. “The consequences of a negative equivalence determination, including having to meet solvency requirements without counting U.S. capital, are potentially severe both for U.S. insurers doing business in EU countries and for EU-based insurers with U.S. operations,” she warned. “Therefore, it will be critical for the U.S. system to be deemed equivalent under Solvency II.”

Elsewhere, Pusey urged the newly the Federal Insurance Office to present a harmonized national voice on international insurance matters.