Sifting through the opposing rulings on the legality of the subsidies on the federal health insurance exchange.
Nelson Levine de Luca & Hamilton’s Chairman Michael R. Nelson
discusses the EU – U.S. Insurance Dialogue and the significance of the
reports of the technical committees.
NEW YORK--(BUSINESS WIRE)--
Mike Nelson, chairman of law firm Nelson Levine de Luca &
Hamilton, represents insurers and reinsurers in regulatory matters as
well as in complex litigation in multiple jurisdictions throughout the
country. Below, Mr. Nelson responds to questions about the EU–U.S.
Dialogue Project and the significance of the recently released reports
of the technical committees.
Several reports comparing the insurance supervisory and regulatory
regimes in the European Union and United States were released by
technical committees formed by the EU-U.S. Dialogue Project’s Steering
Committee. What is the EU-U.S. Dialogue Project and why were the reports
The EU–U.S. Dialogue is an attempt to identify and understand the
differences and the similarities between the EU system of insurance
regulation under Solvency II and the U.S. state-based system. Early this
year, representatives of the regulatory communities of the EU and U.S.
committed to a series of discussions to improve their understanding of
each other’s regulatory systems. The discussions were led by a
six-person Steering Committee that included three representatives from
the EU and three from the U.S.
What has the Steering Committee accomplished?
In addition to having several meetings in person and via phone, the
Steering Committee identified seven subjects that its members agreed
were important to a sound regulatory system, the protection of
policyholders and financial stability. It also established a technical
committee comprised of regulatory experts for each of the seven topics
to objectively compare the two systems and summarize the key differences
The seven subjects or areas of regulation include: Professional Secrecy
and Confidentiality; Group Supervision; Solvency and Capital
Requirements; Reinsurance and Collateral Requirements; Supervisory
Reporting, Data Collection and Analysis and Disclosure; Supervisory Peer
Reviews; and Independent Third-Party Review and Supervisory On-Site
Can we reach any conclusions about the analysis reported by the
We can. First, and not surprisingly, both systems share the same mission
– the protection of policyholders, solvency and financial stability. But
there are some notable differences. There are differences in the
structure and calculation of capital requirements, group supervision,
financial oversight procedures, reinsurance collateral requirements,
governance reporting and accounting principles. In some areas, the EU
system seems more developed while, in other areas, the U.S. system seems
For example, there are significant structural differences in how each
system actually monitors the financial condition of insurers. According
to the reports, the U.S. system of financial analysis and examinations
as well as its centralized data collection appear to be more
comprehensive and rigorous than the EU system.
Following the financial crisis, insurance regulators became more
concerned about regulating at the group level. It appears, from the
reports, that the EU may be closer to the goal than the U.S. It was
noted that, in the EU, groups are viewed as a single economic entity
while in the U.S., regulators tend to concentrate on the individual
entities. The reports indicate that a group supervisor in the EU has
authority over non-domiciled and non-insurance entities in the group.
Insurance regulators in the U.S. do not have such direct authority. They
use a “lead state” concept, which depends upon collaboration with other
regulators. Another difference is that, under Solvency II, there are
group capital requirements. There is no similar requirement in the U.S.
Another notable difference is that U.S. regulators sometimes make
exceptions or apply different rules to smaller insurers. For example,
the technical committees noted that small insurers in the U.S. will not
be required to conduct an Own Risk Solvency Assessment (ORSA). A similar
exemption was not identified for EU insurers.
The International Association of Insurance Supervisors (IAIS) is
meeting in DC later this month. Will these reports influence the agenda?
No, the reports will have no influence on the agenda. The members of the
IAIS are regulators from all over the world and, as a result, their
agenda has a broader focus. Still, the reports contain an interesting
discussion about the differences between the involvement of the U.S. and
the EU in supervisory colleges. The IAIS recently released its proposal
for a Common Framework for the Supervision of Internationally Active
Insurance Groups (ComFrame), which provides a structure for supervisory
colleges. Some of the issues discussed in the reports are similar to
those facing the IAIS as it finalizes ComFrame.
There have long been concerns regarding collateral requirements
placed on EU insurers operating in the US.Was the collateral
issue discussed in the reports?
Yes, the report did address this issue. Reinsurance was one of the areas
of regulation assigned to a technical committee. A key difference noted
by the technical committee was that a foreign reinsurer could be subject
to different collateral requirements in different states, even under the
recent changes to the model acts adopted by the National Association of
Insurance Commissioners (NAIC). Under Solvency II, a collateral
requirement would be binding on all member states. Even more significant
is the fact that, under Solvency II, a reinsurer from a country whose
regulatory scheme is deemed to be equivalent to Solvency II would not
have to post any collateral. Currently, there is nothing in the U.S.
regulatory system that provides for equivalency with other countries or
that would otherwise eliminate all collateral requirements for a
It was interesting that the report on reinsurance contained a reference
to the power granted by the Dodd-Frank Act to the Treasury and the
United States Trade Representative to enter into agreements with other
countries on insurance matters. If reinsurance would become the subject
of such an agreement, it is possible that state collateral requirements
for foreign reinsurers could be preempted.
Now that these reports have been released, what can we expect from
the EU-U.S. Insurance Dialogue?
The reports provide the ground work for additional discussions. They
were not intended to provide any solutions or guidance. The analysis was
very important and quite detailed. The reports will guide the Steering
Committee’s future discussions and conclusions.
We can expect the Steering Committee to focus on the differences between
the two regulatory systems and to consider whether changes can be made
on either side that will help align the systems more closely. The
Steering Committee’s challenge is to determine whether, on any of these
topics, the two regulatory systems should move towards convergence or
improved harmonization. Given the findings in the technical committees’
reports, this could put the Steering Committee in the difficult position
of having to decide that certain aspects of one system are superior to
the other system. Ultimately, it may come down to the degree of
difference that regulators will be willing to accept.
If the Steering Committee members agree that changes are desirable, the
next challenge will be how to effect those changes. The EU is continuing
to develop guidelines for the implementation of Solvency II and the
states are working on a Solvency Modernization Initiative. Both of these
initiatives could provide opportunities to converge and harmonize the
two regulatory systems.
Nelson Levine de Luca & HamiltonDanielle K. Goodwin,
Source: Nelson Levine de Luca & Hamilton