To achieve greater global consistency, the International Association of Insurance Supervisors (IAIS) has set out a series of insurance core principles that provide a framework for the development of solvency regimes. In light of the increasing awareness of the role that internationally active insurance groups play in the global economy, the IAIS also is driving the reform of group-wide supervision, at the heart of which is the development of a common framework known as ComFrame. While there appears to be high-level agreement on key principles (operative word) for solvency regime reform, full convergence is unlikely given territorial industry differences, geopolitical impediments and regulator preferences.

The approach to group supervision has the potential to significantly impact the industry, its global competitiveness and the level of protection for domestic policyholders, particularly in terms of:

• The risk that foreign subsidiaries can jeopardize domestic policyholder protection
• The relative levels of capital among companies operating in a given market
• The ability of internationally active companies to compete globally

As the National Association of Insurance Commissioners (NAIC) moves forward under the Solvency Modernization Initiative, there will be a need to determine an appropriate framework for adequate group-wide supervision of U.S. insurance groups, in addition to introducing a process for the Own Risk and Solvency Assessment (ORSA). Accordingly, the NAIC has employed a deliberate, measured approach to embracing ComFrame. Recent comments by interested parties and regulators at the NAIC's Spring National Meeting held March 3-6 in New Orleans saw a common call for a measured response to ComFrame. This cautionary tone reflects the fact that recent modifications to U.S. insurance law (primarily the Model Holding Company Act) have yet to be fully adopted and that there is as yet incomplete appreciation of the potential impacts of the Model Audit Rule, risk-focused examinations and others. In fact, there appeared to be consensus at the meeting that adding another set of rules would be premature considering that we have yet to see the impact or efficacy of those previously adopted.

If solvency regimes around the world were fully consistent, then group supervision would not introduce capital requirements that create competitive advantages or disadvantages for groups operating in other territories. However, this level of global consistency does not currently exist, and convergence to that level is unlikely in the foreseeable future. Therefore, any related developments should avoid creating inappropriate competitive disadvantages, regulatory arbitrage opportunities or other unintended consequences for the domestic industry.