While it may be tempting for U.S.-based insurers to regard the European Commission’s Solvency II Directive as a strictly foreign affair, they do so at their peril, a new report from New York-based
Authored by Howard Mills, Chief Adviser to Deloitte’s Insurance practice, the report, "Solvency II from a U.S. Perspective," says the race toward a uniform global solvency framework is on.
Although the effort to improve the existing insurance solvency regulation regime for the European Union’s (EU) 27 member states predates the financial crisis, the report notes the recent financial turmoil serving will be further impetus for regulators to tighten capital standards, corporate governance, and disclosure and transparency requirements.
The report states that U.S. insurance companies will feel its effects to varying degrees when Solvency II is entered in force on the expected target date of Jan. 1, 2013. Initially, U.S. subsidiaries with parent companies in the EU will realize the most immediate impact in areas ranging from capital position and enterprise risk management (ERM) to new product development and other strategic areas.
Longer term, Deloitte predicts impacts will be seen throughout the U.S. industry as even U.S.- domiciled companies will need to work to enhance their risk cultures. This seems especially likely since the
"Even insurers who do all of their businesses in the U.S. are not immune as calls arise for modernization and harmonization of insurance regulations and standards across borders," the report states.
To keep pace with both these new regulations and rating agency expectations, the report says that insurers will need to make technology investments in order to improve their ERM capabilities. "A very significant impact will also be seen in the area of technology, as transformation of the risk function comes into play, demanding new architecture that is capable of providing an automated, timely, ‘fit for purpose’ risk analytics for use in strategic decision making.”
