Discussions at the National Association of Insurance Commissioners' fall national meeting highlighted the challenges currently facing NAIC policymakers. The NAIC has the difficult task of balancing the demands of the international supervisory community with the needs of its own insurance community in the United States. Everyone shares a common objective of convergence—but it appears that compromises may be necessary to move forward.
While there are many shared viewpoints in the debate, there are some clear philosophical differences in supervisory approach between U.S. regulators and some of those overseas—in particular regulators from Europe, who are moving toward a consistent regulatory approach throughout the European Union under the European Solvency II Directive.
This difference is often characterized in NAIC discussions as a focus on sophisticated, risk-aligned capital requirements vs. a focus on supervision; in other words, do you focus on the formulas or the supervisors, Pillar 1 or Pillar 2? Europe's planned standard formula and internal models regime will bring a whole new level of sophistication to capital setting for European insurers. However, the NAIC continues to stand by RBC (NAIC risk-based capital) and is investing in its already strong risk-focused examination and analysis capability.
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