Regulatory developments in the European Union and United States present opportunities for large insurers that can use their resources to reduce their capital requirements, while smaller insurers may have to consider strategies such as specializing in particular lines of business to compete, a new report says.

The report by Conning Research & Consulting, "Insurance Solvency Regulation: The Race for a Workable Risk-Based Solution," analyzes proposed regulatory schemes that have evolved since the financial crisis, such as Solvency II in the EU and — in the U.S. — the National Association of Insurance Commissioners' Solvency Modernization Initiative. The report also looks at the New York Insurance Department's expectation that each insurer establish an ERM (Enterprise Risk Management) function, Rating agency Standard & Poor's review of insurers' ERM practices, and the Financial Stability Oversight Council's focus on identifying systemic risks to the financial system, which Conning says "potentially will involve evaluation of the financial stability of large insurers."

While the report details differences in the approach to solvency regulation initiatives in the the EU and U.S., it notes, "Despite differences in approach and emphasis, the one consistent trend among regulators, rating agencies, and other parties is the need for insurers to articulate clearly their understanding of company risks."