NAIC'S VAUGHAN PRESENTS PAPER
AT INSURANCE REFORM SUMMIT
Addresses Solvency Regulation, Capital Requirements,
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
- An overview of the key differences between between U.S.
solvency regulation and Solvency II;
- A summary of lessons learned from the current financial
- Areas for future work on solvency regulation in the United
"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,
- 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
* 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