NU Online News Service, Nov. 2, 2:00 p.m. EDT

The U.S. solvency regime is expected to achieve equivalence with the European Union's Solvency II requirements, Fitch Ratings says in a recent comment.

"The US has a long-standing, risk-based solvency regime," Fitch says. "If it is seen to give policyholders the same protection as Solvency II, despite fundamental differences in the underlying methodologies, we expect this to result in equivalence recognition from the EU."

Last week, the European Insurance and Occupational Pensions Authority (EIOPA) published its final advice to the European Commission regarding its assessment of the Solvency II equivalence of supervisory systems in Switzerland, Bermuda and Japan. EIOPA finds that that Switzerland and Japan meet the criteria set out in equivalent assessments, with some caveats, as does Bermuda for certain categories of insurers.

The U.S. was not included in this first assessment, but Fitch says it believes the U.S. will likely be covered by transitional measures for a limited time, if necessary.

"Equivalence would be mutually beneficial for both markets," says Fitch, noting that without equivalence, European insurers and reinsurers with US operations would face the same capital requirements in the U.S. as locally-owned companies, in addition to the extra capital requirements of Solvency II.

For the U.S. insurance market, Fitch says it benefits from equivalence through the capital and investment that European companies bring via their U.S. subsidiaries.

Fitch notes that losers in this scenario are likely to be U.S.-based competitors of EU-owned subsidiaries that would otherwise have benefited from reduced competition and possible acquisitions as well as EU reinsurers that may have picked up extra business.

Beneficiaries of regulatory equivalence, Fitch adds, are European companies that have large subsidiaries regulated in the U.S., U.S. companies selling reinsurance to EU companies, and U.S. groups with subsidiaries in Europe.

Contributing to the likelihood of an agreement on equivalence, Fitch says it sees as a positive sign the movement by some U.S. states to drop "harsh collateral requirements" on reinsurance written in the U.S. by European companies.

Fitch says if there is no ruling on U.S. equivalence by the European Commission, then each EU member country can make its own determination.

Special Reports /

Fitch Sees U.S. Gaining Solvency II Equivalence

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