FOR IMMEDIATE RELEASE

NAIC'S VAUGHAN PRESENTS PAPER AT INSURANCE REFORM SUMMIT
Addresses Solvency Regulation, Capital Requirements, Lessons Learned

WASHINGTON, D.C. (March 5, 2009) - The National Association of Insurance Commissioners (NAIC) Chief Executive Officer Therese M. (Terri) Vaughan, Ph.D., today released a paper she authored, "The Implications of Solvency II for U.S. Insurance Regulation." Dr. Vaughan's paper, which was presented here during the Networks Financial Institute (NFI) 6th Annual Insurance Reform Summit, includes:

• A brief description of Solvency II, the currently proposed regulatory capital system for insurance companies in the European Union;
• An overview of the key differences between between U.S. solvency regulation and Solvency II;
• A summary of lessons learned from the current financial turmoil; and
• Areas for future work on solvency regulation in the United States.

"Much work has been done in recent years on the subject of insurance regulation and capital requirements, and the process of regulatory reform will continue," Dr. Vaughan says. "It behooves insurance supervisors to take a step back, revisit the underlying assumptions, and assess what implications, if any, their conclusions have for future work."

Specifically, Dr. Vaughan addresses three assumptions:

1. Company incentive to manage risk: "The effectiveness of market discipline itself is being questioned, as regulators and counterparties become aware of the vast amount of hidden leverage and risk that existed in our financial system."

2. Regulator ability to identify risky activities in firms: "Effective regulatory monitoring systems must go beyond a reliance on capital. It is important for regulators to be cognizant of red flags that demand their attention."

3. The effectiveness of regulatory action: "A review of the robust mechanisms that U.S. insurance regulators have developed to coordinate and create checks and balances could provide valuable insights to policymakers charged with developing supervisory systems that cross geographic boundaries."

In addition, Dr. Vaughan states that some of the lessons learned have confirmed the wisdom of certain aspects of U.S. regulation, including:

• Checks and balances;
• A combination of principles-based and rules-based regulation;
• The importance of other regulatory tools; and
• Enhancements to U.S. insurance regulation.

Dr. Vaughan concludes: "The optimal regulatory structure is one that encourages supervisors to take action when it is appropriate, and a system that incorporates duplicative regulatory oversight may advance that objective."

Click HERE for the full text of Dr. Vaughan's paper.*

* The opinions expressed in this paper are the personal opinions of the author and do not necessarily express the views of the NAIC or its members. Dr. Vaughan served as Iowa Insurance Commissioner from 1994 to 2004. In that position, she served under the administrations of both major parties and was the longest-serving commissioner in Iowa's history. She was an active member of the NAIC, serving as president in 2002. Prior to being named CEO of the NAIC in February 2009, Dr. Vaughan was the Robb B. Kelley Distinguished Professor of Insurance and Actuarial Science at Drake University.