Conn. Commissioner: No Apologies For U.S. Regulatory System

Connecticut's top insurance regulator says the United States needs to “stop apologizing” for its regulatory regime, stating that it has worked “remarkably well” through troubled times.

Connecticut Insurance Commissioner Thomas Leonardi joined Thomas Sullivan, PricewaterhouseCooper's (PwC) financial-services regulatory-practice principal, and Henry Jupe, PwC insurance-practice manager, in an hour-long PwC webinar titled “Solvency II and the Impact of Equivalence in the U.S.”

Leonardi called Solvency II “a wonderful and much-needed effort to modernize, admittedly, an outmoded European regulatory regime.”

However, he was critical of those who are campaigning to see Solvency II become the “be all and end all of insurance regulation.”

While there are significant differences in the way regulations are formulated in the United States and Europe, the end results are the same: to ensure the solvency of carriers, their ability to pay claims and protection of consumers, Leonardi said.

“We in the United States need to stop apologizing for our regulatory regime,” he stated. “While not perfect, our national, state-based system has worked remarkably well, even in the market downturn of 2001 and the financial crisis of 2008.”

One critical observation he has of Solvency II is that it remains a work in progress and “has not been tested in the real world.”

“In the end, perhaps, I think the more pertinent question is whether and when the EU will be equivalent to the U.S., and not the other way around,” Leonardi said.

However, he continued, not achieving equivalence would have a negative impact on the industry and consumers with international interests, making it ever more important that equivalency be reached.

“I think it makes more sense for countries to be assessed against international standards and not have multiple regional-equivalence assessments that could potentially overlap and conflict with one another,” said Leonardi. “I do believe in the long-term objective of global, regulatory convergence on an outcomes basis, and one that protects consumers and promotes stability.”

Meanwhile, an overwhelming majority of insurance executives believe it is important for the United States to pursue equivalency with Europe's Solvency II regulation, a PwC survey found.

In a flash survey conducted during the consulting firm's webinar, slightly more than 78 percent of the more than 150 attendees said they believe the United States should pursue equivalency under Europe's new financial-regulation modernization plan. Close to 22 percent said the U.S. should not pursue equivalency.

Solvency II, which is scheduled to take effect in Europe on Jan. 1, 2013, would impact any U.S. insurer doing business in Europe. Equivalency would give U.S. regulations the same weight as Solvency II.

Should European regulators find that U.S. regulations are not equivalent to Solvency II, said Sullivan, the biggest direct impact would be that U.S. carriers would have to put-up more capital to cover claims.