“It is essential that convergence based on a maximum level of harmonization is kept in the legislative process, limiting the room for national discretion and national options,” according to Mr. Steffen.

The three so-called “pillars” of Solvency II consist of quantitative capital requirements, risk management practices required, and supervisory reporting and transparency rules.

Meanwhile, before final implementation–set to take place between 2010 and 2012–Solvency II will have to gain approval from the European Parliament and other continental groups.

For the U.S. property-casualty industry, the success of implementation of a set of solvency standards across Europe presents an opportunity to bring closure to the long-standing issue of collateral requirements for so-called alien reinsurers.

Brad Kading, president of the Association of Bermuda Insurers and Reinsurers, said among the details that need sorting out are risk-based capital requirements, group supervision provisions and accounting requirements.

But when fully implemented sometime within the next three to five years, the parallels with the United States will become evident, he noted. “In both systems, there will be a need for uniform regulatory treatment in various jurisdictions that make up the union,” said Mr. Kading. If deference to the domiciliary regulator does not take place, then pressure for a single federal regulator in both the United States and European Union will grow, he added.

North Dakota Insurance Commissioner Jim Poolman–who has been in the forefront of regulators calling for the relaxation of collateral requirements for non-U.S. reinsurers–sees Solvency II implementation buttressing his case.

“The Europeans are moving toward more transparency, better supervision and increased risk management,” he said. “This should help my colleagues become more comfortable with changing the collateral scheme required of foreign reinsurers.”

For the past several years, the Reinsurance Association of America has raised serious questions about any change in collateral requirements. RAA General Counsel Tracey Laws said that while Solvency II contains concepts her group supports–such as a single regulator for reinsurance, as well as mutual recognition among member states–too many questions remain before it can be seen as the panacea for the collateral issue.

“Solvency II contains a statement that member states are prohibited from imposing collateral on a non-EU licensed company if that company's country has been deemed 'equivalent,'” she said. “That phrase and that process are currently undefined.”

Moreover, she added, “it is ironic that the EU is moving toward a system that requires licensing and is, at the same time, pressing U.S. regulators to move away from requiring licensing, and to eliminate the option of participating without a license via collateral.”

Phil Carson, assistant general counsel for the American Insurance Association, sees the specter of Solvency II having only a “tangential” impact on collateral discussions. But he does see subtle pressures from the European standard-setters being felt across the pond on U.S. lawmakers and regulators to bring about a single regulator for reinsurance.

Solvency II implementation will also affect the movement toward global accounting and reporting standards for the insurance industry, although not as originally envisioned, according to Standard & Poor's London-based analyst Rob Jones.

Two parallel processes governed by the International Accounting Standards Board and the EU Solvency II standard-setters are attempting to reach the same goal of uniform cross-European–and, ultimately, global–accounting standards.

Since International Financial Reporting Standards have yet to take hold, the European Commission will have to prescribe an approach of its own, according to Mr. Jones.

Meanwhile the U.S. p-c sector continues to object to the use of discounts for non-life liabilities, which is supported by the EC, the IASB and the International Association of Insurance Supervisors. “This could easily result in pushing IFRS Phase II implementation standards beyond 2012 if a unified standard is pursued,” Mr. Jones said.

But first and foremost, Solvency II will change the face of European insurance regulation. In fact, Moody's London-based analyst Simon Harris said it represents the biggest such change in 30 years.

While certain companies may face requirements to hold more capital, Mr. Harris does not see the overall level rising all that much. “The biggest impact is on enhancing the level and penetration of risk management techniques and cultures within the insurance companies, since this will be a central requirement to regulation going forward,” he said.

Mr. Jones agrees, noting that the scarcity of skills and resources needed to meet the demand of Solvency II-style supervision may strain all but the largest of carriers.

Both the carriers below mega-status and supervisors themselves will require some adjusting. “Many have a heritage of legalistic desk-based retrospective analysis,” he said. “They will have to transform the way they operate in a fairly short time to accommodate a prospective outlook, where substance takes precedence over form.”

London-based lawyer Bill Marcoux, who has represented the International Underwriting Association in its collateral efforts in the United States, said the regime will change the relationship between the supervisors and supervised in Europe.

“Supervisors will have to be convinced at any given time that the company knows its risks, has the appropriate tools in place to assess and monitor them, and has implemented the internal procedures necessary to take action early enough in the case of difficulties,” he said.

Luke Savage, Lloyd's director of finance, risk management and operations, does not see much of an impact on the market, or in the United Kingdom in general, since the Financial Services Authority has instigated its own risk-based capital system. He said the analogous European process in the banking industry, which started about 10 years ago, has resulted in those standards becoming virtually global, and he sees much the same result potentially happening with insurance.

“Here at Lloyd's, we have had risk-based capital for something like 12 years,” he said, noting the market has been aligned with the FSA standards in that regard. “So that has been hugely beneficial.”

While the fair-value style of reserving might result in some initial volatility, it is nothing compared to that resulting from the storms of 2004-05, and the protracted litigation from the World Trade Center attacks revolving around the number of events that took place that day.

In addition, the fact that capital requirements will stiffen as the market softens could lead to the industry attracting more capital. “This in itself will dampen the cycle, because people will be putting up more capital for less profit as the cycle softens, and that will make them put down the pen sooner,” he said.

Mr. Harris of Moody's made much the same point when he said increased transparency under Solvency II could help insurers as they turn increasingly to the capital markets through, as an example, the issuance of hybrid debt instruments.

And then there is the cost, particularly as it relates to consolidation pressures already evident in Europe. Mr. Harris said that the most recent EC estimate puts the figure somewhere near $3 billion, which gives an immediate advantage to the large multinational players.

“We do not expect Solvency II to provide consolidative pressure in its own right, but at the margins it may contribute toward such pressures that already exist in the industry,” he said.