EU-U.S. Dialogue Project

Technical Committee Reports 

Comparing Certain Aspects of the Insurance 

Supervisory and Regulatory Regimes in the 

European Union and the United States

Issue Date: December 2012
December 2012 

To Interested Parties: 

The Steering Committee of the EU-U.S. Dialogue Project presents herewith the final reports 

of seven technical committees comparing certain aspects of the insurance supervisory regimes 

in the European Union and the United States. Attached is background information on the 

Project and the reports themselves. The reports informed the Steering Committee as to the key 

commonalities and differences between the EU’s insurance regulatory and supervisory regime

and the state-based insurance and regulatory regime in the U.S. The Steering Committee has 

agreed to common objectives and initiatives to be pursued over the next five years which are 

set out in the Way Forward document available at

[https://eiopa.europa.eu/publications/reports/index.html]. The Steering Committee 

acknowledges the valuable contributions of the technical committee members and those who 

provided comments during the public consultation process. 

Sincerely, 

The Steering Committee 

Contacts: 

A. Thomas Finnell Jr., Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 

U.S. Department of the Treasury, at: tom.finnell@treasury.gov

Dr. Manuela Zweimueller, Principal Expert and External Relations Team Coordinator, 

European Insurance and Occupational Pensions Authority, at: 

Manuela.Zweimueller@eiopa.europa.eu
Table of Contents 

Introduction to the EU-U.S. Dialogue Project ......................................................................................... 1

The Contributing Parties.......................................................................................................................... 5

The Technical Committee Reports.......................................................................................................... 7

1. Professional Secrecy and Confidentiality ........................................................................................ 9

2. Group Supervision......................................................................................................................... 26

3. Solvency and Capital Requirements.............................................................................................. 46

4. Reinsurance and Collateral Requirements.................................................................................... 75

5. Supervisory Reporting, Data Collection and Analysis and Disclosure........................................... 88

6. Supervisory Peer Reviews............................................................................................................ 100

7. Independent Third Party Review and Supervisory On-Site Inspections...................................... 116

Appendix I – Acronyms and Abbreviations ......................................................................................... 126

Appendix II – Contributing Parties ...................................................................................................... 130
Page 1 of 130 Pages

Introduction to the EU-U.S. Dialogue Project

In the EU, the European Parliament, the Council of the European Union and the European 

Commission (EC), technically supported by the European Insurance and Occupational 

Pensions Authority (EIOPA), are modernizing the EU’s insurance regulatory and supervisory 

regime through the Solvency II Directive (Directive 2009/138/EC), in place since 2009. This 

so-called Framework Directive was the culmination of work begun in the 1990s to update 

existing solvency standards in the EU. Current work aims to further specify the Framework 

Directive with technical rules and guidelines, which are necessary for a consistent application 

by insurers and supervisors of the framework. 

In the United States, the states are the primary regulators of the insurance industry. State 

insurance regulators are members of the National Association of Insurance Commissioners 

(NAIC), a standard-setting and regulatory support organization created and governed by the 

chief insurance regulators from the 50 states, the District of Columbia and five U.S. 

territories. As part of an evolutionary process, through the NAIC, state insurance regulators 

in the U.S. are currently in the process of enhancing their solvency framework through the 

Solvency Modernization Initiative (SMI). SMI is an assessment of the U.S. insurance 

solvency regulation framework and includes a review of international developments regarding 

insurance supervision, banking supervision, and international accounting standards and their 

potential use in U.S. insurance regulation. 

In early 2012, the EC, EIOPA, the NAIC and the Federal Insurance Office of the U.S. 

Department of the Treasury (FIO) agreed to participate in dialogue and a related project 

(Project) to contribute to an increased mutual understanding and enhanced cooperation 

between the EU and the U.S. to promote business opportunity, consumer protection and 

effective supervision. The project is considered to be part of and builds on the on-going EUUS Dialogue which has been in place for over 10 years. The work was carried out in 

collaboration with EIOPA and competent authorities in the EU Member States, and with state 

insurance regulators and the NAIC in the United States. The objective of the Project is to 

deepen insight into the overall design, function and objectives of the key aspects of the two 

regimes, and to identify important characteristics of both regimes. 

Project Governance and Process: The Project is led by a six-member Steering Committee 

comprised of three EU and three U.S. officials, as follows: 

• Gabriel Bernardino – Chairman of EIOPA 

• Edward Forshaw – Manager in the Prudential Policy division, UK Financial Services 

Authority, and EIOPA Equivalence Committee Chair 

• Karel Van Hulle – Head of Unit for Insurance and Pensions, Directorate-General 

Internal Market and Services, EC
Page 2 of 130 Pages

• Kevin M. McCarty– Commissioner, Office of Insurance Regulation, State of Florida, 

and current President of the NAIC 

• Michael McRaith – Director, FIO, United States Department of the Treasury

• Therese M. (Terri) Vaughan – Chief Executive Officer, NAIC1

Since the Project began, the Steering Committee held face-to-face meetings in Basel, 

Brussels, Frankfurt and Washington DC, as well as numerous conference calls. In a first step, 

the topics to be discussed were agreed upon and a process for information exchange under 

confidentiality obligations was established. The Steering Committee agreed upon seven topics 

fundamentally important to a sound regulatory regime and to the protection of policyholders 

and financial stability. The seven topics are: 

• Professional secrecy/confidentiality; 

• Group supervision; 

• Solvency and capital requirements; 

• Reinsurance and collateral requirements; 

• Supervisory reporting, data collection and analysis; 

• Supervisory peer reviews; and 

• Independent third party review and supervisory on-site inspections. 

A separate Technical Committee (TC) was assembled to address each topic. Each TC was 

comprised of experienced professionals from both the European Union as well as the United 

States, specifically, from FIO, the EC, the NAIC and EIOPA, as well as representatives from 

state insurance regulatory agencies in the United States and competent authorities of EU 

Member States. The various professionals who comprised the technical committees were 

selected because of their qualifications and experience with respect to the subject matter of 

each topic, including insurance regulators and supervisors, attorneys, accountants, examiners, 

and other specialists. The teams worked jointly to develop objective, fact-based reports 

intended to summarize the key commonalities and differences between the Solvency II regime 

in the EU, and the state-based insurance regulatory regime in the United States. Supporting 

documentation, e.g., regulations, directives, and supervisory guidance, was exchanged as 

requested by either side. 

The accompanying seven technical committee reports were jointly drafted to reflect the 

consensus views of each respective technical committee’s members. The draft reports were 

 

1 As of December 1, 2012, the NAIC was represented on the Steering Committee by Eric Thompson, the NAIC’s 

Manager of International Relations.
Page 3 of 130 Pages

subsequently released for public consultation. The written consultation was complemented by 

two public hearings held in October 2012, one in Washington DC and another in Brussels. 

Based on oral and written comments received through the consultation process, factual 

inaccuracies noted in the draft reports were corrected and limited clarifications were made. 

The reports were not amended further despite recommendations to do so by some 

commenters, i.e., the scope of the Project was not expanded as a result of the consultation 

process. Notwithstanding this, all oral and written comments have been taken into 

consideration in the Steering Committee's deliberations as part of the second phase of the 

project. 

No action has been taken by the governing bodies of the organizations represented on the 

Steering Committee to formally adopt the factual reports and thus this document should not 

be considered to express official views or positions of any organization. The reports represent 

the culmination of work from the Project, and informed the work of the Steering Committee

in agreeing to the aforementioned common objectives and initiatives. A detailed project plan 

will be developed in early 2013 and will be updated periodically. 

The information that is the subject of the accompanying seven reports pertains to the 

insurance regulatory and supervisory regimes in both the EU and the United States. The statebased approach in the U.S. as described in the reports is in some respects based on NAIC 

Model laws and regulations that are given effect only through legislative enactment in each 

respective state. While some of these model laws have yet to be adopted and implemented in 

certain states, a core set of common solvency regulatory standards are in place in all states. In 

the case of the EU, the approach described in the reports is largely based on the approach set 

out in the Solvency II Directive. However, in order to ensure a comprehensive comparison 

with the State-based Regime in the U.S., reference is also made in some cases to the approach 

envisaged for the technical rules that will implement the Directive. It is important to note that 

those technical rules are still under development and have yet to be adopted by the European 

Commission in the form of delegated acts. These rules and certain NAIC models are in some 

instances referred to in the present tense in the Technical Committees’ reports, i.e., as if they 

are currently in place, even though they have not yet been adopted or implemented, with 

respect to these rules in the EU or, in the case of the model laws in the United States, by all 

states. 

The report does not purport to represent or pre-judge the views and/or the formal proposals of 

the Commission. The approach described is largely based on what was tested in the last full 

quantitative impact study (QIS5), the technical specifications for which are publicly available. 

Insurance is a specialized and complex industry, and insurance regulatory and supervisory 

matters can be just as specialized and complex. Terminology used in the reports reflects the 

background of the respective members of each technical committee, and thus the terminology 

and writing styles may vary somewhat from one committee report to another. The Steering 

Committee expects that interested parties who may have an interest in the Project and in 

submitting comments are familiar with the insurance industry and its regulation in the EU, the 

U.S., or both. Accordingly, the technical committees have endeavoured to prepare their 
Page 4 of 130 Pages

reports in a manner that is appropriate for their own purposes and that of the Steering 

Committee. 

There is some technical terminology that is used in the reports and, where considered 

appropriate, definitions have been provided therein. Some terms are unique to the U.S. and 

the EU but have the same meaning, for example, insurers and undertakings; and reserves and 

technical provisions. Other terms exist in both the U.S. and the EU, e.g., review, audit or 

ORSA, but differ in content/substance. 

Numerous abbreviations and acronyms have been used throughout the seven reports,

definitions of which have been included in a separate appendix for the convenience of readers.

The text of this report can be quoted but only with adequate attribution to the source 

document.
Page 5 of 130 Pages

The Contributing Parties

The Federal Insurance Office, U.S. Department of the Treasury

The Federal Insurance Office (FIO) of the U.S. Department of the Treasury was established 

by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The FIO monitors all aspects of the insurance industry, including identifying issues or gaps in 

the regulation of insurers that could contribute to a systemic crisis in the insurance industry or 

the United States financial system. The FIO serves on the U.S. Financial Stability Oversight 

Council. The FIO coordinates and develops U.S. Federal policy on prudential aspects of 

international insurance matters, including representing the United States, as appropriate, in the 

International Association of Insurance Supervisors. The FIO assists the Secretary in 

negotiating certain international agreements, and serves as the primary source for insurance 

sector expertise within the Federal government.

The FIO monitors access to affordable insurance by traditionally underserved communities 

and consumers, minorities, and low- and moderate-income persons. The FIO also assists the 

Secretary in administering the Terrorism Risk Insurance Program.

The European Commission 

The European Commission (EC) is one of the main institutions of the European Union. It 

represents and upholds the interests of the EU as a whole. The EC is the executive branch of 

the EU and is responsible for proposing new European laws to Parliament and the Council. 

The EC oversees and implements EU policies by enforcing EU law (together with the Court 

of Justice), and represents the EU internationally, for example, by negotiating international 

trade agreements between the EU and other countries. It also manages the EU's budget and 

allocates funding.

The 27 Commissioners, one from each EU country, provide the Commission’s political 

leadership during their 5-year term. 

The National Association of Insurance Commissioners

The National Association of Insurance Commissioners (NAIC) is the standard-setting and 

regulatory support organization created and governed by the chief insurance regulators from 

the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state 

insurance regulators establish standards and best practices, conduct peer review, and 

coordinate their regulatory oversight that is exercised at the state level. NAIC staff supports 

these efforts and represents the collective views of state regulators domestically and 
Page 6 of 130 Pages

internationally. NAIC members, together with the central resources of the NAIC, form the 

national regime of state-based insurance regulation in the United States. 

European Insurance and Occupational Pensions Authority 

The European Insurance and Occupational Pensions Authority (EIOPA) was established as a 

result of the reforms to the structure of supervision of the financial sector in the European 

Union. The reform was initiated by the EC, following the recommendations of a Committee 

of Wise Men, chaired by Mr. de Larosière, and supported by the European Council and 

Parliament. EIOPA technically supports the EC, amongst others, in the modernization of the 

EU’s insurance regulatory and supervisory regime. Current work aims to further specify the 

Solvency II Framework Directive with technical rules and guidelines, which is necessary for a 

consistent application by insurers and supervisors of the framework. In cross-border 

situations, EIOPA also has a legally binding mediation role to resolve disputes between 

competent authorities and may make supervisory decisions directly applicable to the 

institution concerned. 

EIOPA is part of the European System of Financial Supervision consisting of three European 

supervisory authorities, the others being the national supervisory authorities and the European 

Systemic Risk Board. EIOPA is an independent advisory body to the EC, the European 

Parliament and the Council of the European Union. 

EIOPA’s core responsibilities are to support the stability of the financial system, transparency 

of markets and financial products as well as the protection of insurance policyholders, pension 

scheme members and beneficiaries.

Other Contributing Parties

The Steering Committee of this Dialogue Project gratefully recognizes the contributions of 

their organization’s staff, of insurance supervisors and regulators from various EU Member 

States as well as from various state insurance departments in the United States who served on 

the various technical committees. Those individuals are listed in Appendix II. 
Page 7 of 130 Pages

The Technical Committee Reports

In developing their reports, the Technical Committees acknowledged the overall policy 

objective of insurance regulation, the protection of policyholders. Both regimes aim to ensure 

the ongoing solvency of domestic insurance and reinsurance companies. Additional regulatory 

objectives include facilitating an effective and efficient marketplace for insurance products, 

and ensuring financial stability. These overarching policy objectives – which are common to 

both the state-based regime in the U.S. as well as the EU regime – provide a foundation for 

each of the accompanying seven reports. 

In addition, the Steering Committee acknowledges that each solvency regime must be 

considered from a holistic perspective and is also mindful that differences between the 

respective regulatory frameworks are in some cases attributable to different philosophical 

approaches and legal foundations. For example, the different solvency tools outlined in the 

Technical Reports are used to varying degrees by each regime. Such differences will be 

considered as appropriate in the second phase of the Project, but, apart from the inclusion of 

cross-references between the topics, it was deemed to be beyond the scope of the Project to 

make further amendments to the individual Technical Committee reports in this regard. The 

report gives nonetheless a comprehensive overview of the key parts of both regimes even if 

depicted separately. 

The state-based solvency regime in the U.S. is based on 7 core principles, as follows: 

• Principle 1: Regulatory reporting, disclosure and transparency 

• Principle 2: Off-site Monitoring and Analysis

• Principle 3: On-site Risk-focused Examinations 

• Principle 4: Reserves, Capital Adequacy and Solvency 

• Principle 5: Regulatory Control of Significant, Broad-based Risk-related Transactions/ 

Activities

• Principle 6: Preventive and Corrective Measures, including enforcement 

• Principle 7: Exiting the Market and Receivership 

The EU Solvency II follows a three pillar approach. 

• Pillar I: Quantitative requirements relating to valuation of assets and liabilities, 

including technical provisions, the quality of own funds and Minimum and Solvency 

Capital Requirements

• Pillar II: System of Governance and risk management requirements 

• Pillar III: Supervisory reporting and public disclosure 

There are commonalities as well as differences between the Core Principles identified in the 

U.S. state-based regime’s Insurance Financial Solvency Framework and the three pillar 

approach of Solvency II. The reports of the Technical Committees which follow highlight the 
Page 8 of 130 Pages

key commonalities and differences for each of the seven topical areas selected for them by the 

Steering Committee to review. 

Each technical committee focused on only one of the aforementioned topics. In practice, the 

regulatory aspects that are the topic of each respective technical committee report operate on 

an integrated basis, as well as with other regulatory tools and powers that are not covered by 

the accompanying reports. Where appropriate, the report of a technical committee makes 

reference to the reports of one or more other technical committees. For example, a reference 

in any one of the accompanying reports to “TC3” means the report of Technical Committee 3, 

which is listed in the Table of Contents of this combined document as “3. Solvency and 

Capital Requirements.”

The reports of the technical committees refer to various EU directives and regulations, as well 

as to various NAIC model laws and regulations. In the EU, a directive is a legal act that lays 

down certain end results that must be achieved in every Member State. National authorities 

have to adapt their laws to meet these goals, but are free to decide how to do so. In case of 

maximum harmonization directives, Member States may not foresee requirements other than 

those laid down by the Directive.2

EU regulations are the most direct form of law; as soon as they are passed, they have binding 

legal force throughout every Member State, on a par with national laws. National 

governments do not have to take action themselves to implement EU regulations. Regulations 

are passed either jointly by the Council of the European Union and European Parliament, or in 

some specific areas, by the Commission alone. 

The state-based regime in the U.S., through the NAIC, utilizes model laws and regulations 

developed by state insurance regulators. Although these model laws and regulations require 

state legislative enactment to become effective, a core set of solvency regulation standards are 

effectively obligatory by operation of the NAIC Accreditation Program. Although the states 

are primarily responsible for the regulation of insurance in the U.S., certain federal laws 

referenced herein may also apply to insurers or specific insurance activities.

 

2 The Solvency II Framework Directive is considered for major parts a maximum harmonization directive. 
Page 9 of 130 Pages

1. Professional Secrecy and Confidentiality

Executive summary

• TC1 organised its analysis of the key commonalities and differences by focusing on 

the analysis of the following subjects: policy objectives of confidentiality laws; the 

relationship between freedom of information laws and insurance confidentiality laws 

in the U.S. and the EU; the role of the National Association of Insurance 

Commissioners (NAIC), the European Insurance and Occupational Pensions Authority 

(EIOPA) and the Federal Insurance Office (FIO) as distinct from insurance regulators

/ supervisors in the U.S. states and EU Member States; authority to share information 

across borders and the laws associated with information exchanges, methods for 

exchanging information, such as Memoranda of Understanding (MoUs) and 

confidentiality agreements, and the confidentiality of non-public supervisory 

information received by the FIO. 

• Both regimes seek to balance the objective of maintaining professional secrecy with 

appropriate flexibility to share information with other supervisory authorities with a 

legitimate and material interest in the information. Against this key commonality, key 

differences in structural approach can be observed. In the EU, the basic presumption 

incorporated in insurance legislation is that virtually all information acquired by the 

supervisory authorities in the course of their activities is bound by the obligation of 

professional secrecy. A series of “gateways” then facilitates information exchange 

with other relevant authorities. In the U.S., state laws generally provide for the 

confidentiality of certain information submitted to, obtained by, or otherwise in the 

possession of an insurance department. The approach is more often focused on 

protecting specific information from being available for public inspection.

• Freedom of information (FOI) laws concerning government records and actions are 

premised on public access to official actions. In both the EU regime and the statebased regime in the U.S., laws express the general policy of public access to 

government information, but this public policy is qualified by specific protections 

from disclosure for certain categories of information. The result is that both regimes 

provide for broad confidentiality protections for sensitive information while allowing 

for the sharing of that information among regulators in appropriate circumstances.

• In both regimes, primary regulatory responsibility rests with the various state 

insurance departments in the U.S. and with the EU Member State supervisory 

authorities, respectively. The functions of both sets of supervisors are supplemented 

by the NAIC in the U.S. and EIOPA in the EU. The NAIC and EIOPA, in varying 

ways, assist the supervisory authorities in their regulatory roles and, in doing so, may 

receive certain confidential information pursuant to the laws of the relevant 

jurisdictions. 
Page 10 of 130 Pages

• The newly-created FIO establishes a center of insurance expertise within the U.S. 

federal government. In carrying out certain of its functions, FIO will continue to

interact with insurance and other regulators in the U.S. and the EU, and may 

participate in exchanges of confidential information. The Dodd-Frank Act requires the 

FSOC, the FIO, and the Office of Financial Research (OFR), which is an office within 

the U.S. Department of the Treasury that was also established by the Dodd-Frank Act, 

to maintain the confidentiality of any data, information, and reports submitted under 

that Federal law. All FSOC members entered into a MoU that sets out the 

understanding of all FSOC members regarding the treatment of non-public 

information. The MoU presumes that non-public information exchanged under its 

terms is confidential.

• Both regimes include general authorizations to share confidential information with 

other financial regulators, law enforcement officials and other governmental bodies in 

need of such information to perform their duties. Confidential information may only 

be disclosed to such persons if they can maintain confidentiality and/or demonstrate 

their ability to protect such information from disclosure when the information is in 

their possession. Both regimes acknowledge the possibility of utilizing and disclosing 

information in receivership and bankruptcy actions, prosecuting regulatory and 

criminal actions, and pursuant to certain court actions.

• Both regimes allow for regulators to enter into agreements or MoUs with counterparts 

in other jurisdictions to facilitate the sharing of confidential information. Both 

regimes provide broad discretion to regulators to establish the terms of such 

agreements, including the verification of each regulator’s ability to maintain the 

confidentiality of information received from another jurisdiction. Both regimes 

address the issue of potential sharing of information with third parties, but achieve 

similar outcomes in different ways. EU Member State requirements that the recipient 

of confidential information obtain explicit permission from the originating source 

before sharing with another regulator are often developed as a result of legal 

constraints under the EU directives, while state insurance regulators in the U.S. are 

bound by general legal requirements to respect the confidentiality of information 

under the laws of the providing jurisdiction and the memorialization of this respect in 

written confidentiality agreements.

• The similarities between the two regimes are greater than anticipated prior to the 

beginning of this dialogue. While there may be differences in the form and 

application of professional secrecy and confidentiality laws between the two regimes, 

they are substantially similar in the subject matter addressed and the outcome to be 

achieved. It is acknowledged on both sides that there is little evidence of practical 

problems related to the exchange of confidential information between state insurance 

regulators in the U.S. and EU regulators, although the flow of information has not 

been substantial so far and may have been inhibited by the interaction of EU directive 

constraints and concerns over professional secrecy. 
Page 11 of 130 Pages

Topic 1: Policy objectives in relation to professional secrecy and the exchange of 

information 

Key Commonalities:

• Neither regime includes a single, all-encompassing definition of the term “confidential 

information.” However both regimes identify general or specific categories of 

information that will be considered confidential by law and not subject to disclosure 

except under specific defined circumstances. 

• Legal sources, as primarily expressed through statutes and directives, provide the 

foundation for the confidentiality of certain categories of information and the 

circumstances under which confidential information may be used and disclosed. 

While statutes and directives provide the foundation, both regimes recognize that 

confidentiality requirements may be complemented through administrative 

regulations, judicial opinions and MoUs. 

• Both regimes provide a range of penalties that may be levied against persons who 

breach professional secrecy obligations. Under both regimes, the penalties can include 

loss of employment, civil and administrative fines, imprisonment or a combination of 

these penalties. The definition of the penalties, as well as their enforcement, is 

handled at the U.S. state or EU Member State level.

Key Differences:

• The structural approach to confidentiality is very different. The EU approach starts 

from the presumption of confidentiality and identifies exceptions. Within the U.S., the 

provisions on professional secrecy vary from state to state as there is a clearer 

emphasis on access to public records. The presumption in most cases is that 

information is publicly available unless it is designated confidential through state laws 

or statutes. However, both regimes tend toward the same outcomes in terms of 

protecting information identified as confidential while facilitating information 

exchange among supervisory authorities across jurisdictions. 

Discussion/ Description of the Two Regimes: 

 The EU Approach: 

The Solvency II Directive provisions on professional secrecy reflect similar provisions in the 

EU insurance directives currently in force. These operate on the basis that any confidential 

information received in the course of the performance its duties by the supervisory authority 

shall not be divulged to any person or authority whatsoever, except in summary or aggregate 

form, such that individual insurance and reinsurance undertakings cannot be identified. There 

are limited exceptions to the general rule, covering cases covered by criminal law and 
Page 12 of 130 Pages

disclosure where a firm has been declared bankrupt or is being compulsorily wound up. The 

professional secrecy obligation continues to apply after employees have left the supervisory 

authority, and the obligation also applies equally to auditors and experts acting on behalf of 

the supervisory authority. 

While there is no definition incorporated in either the existing EU directives or Solvency II of 

what constitutes confidential information, the interpretation of the scope of the professional 

secrecy provision has been wide ranging. It is generally taken to encompass all firm specific 

information received by supervisory authorities unless it is already in the public domain and 

not just information that might be explicitly labeled confidential. Supervisory assessments of 

firms undertaken by national supervisory authorities are not disclosed, and the public 

availability of information on the performance of insurers under the existing directives will 

vary from EU Member State to Member State depending on provisions in national legislation. 

By contrast, the Solvency II regime will incorporate provisions requiring a higher level of 

public disclosure of financial information across the EU, including the requirement on firms 

to report annually on their solvency and financial condition. 

A common professional secrecy provision means that there is no legal block to the exchange 

of confidential information between national supervisory authorities within the EU, and 

facilitates the participation in EU colleges. No further cooperation agreements are required, 

but in practice colleges often develop their own MoU to formalise the expected information 

exchange in respect of the particular group. 

 The Approach in the State-based Regime in the U.S.: 

State insurance laws include many specific references to the types of information that will be 

considered confidential, and notably state laws generally provide that examination work 

papers and related information, risk-based capital information and holding company act 

filings and examination information are confidential. Nevertheless the extent of the 

availability of firm specific information in the public domain can help reinforce market 

discipline.

The obligation of professional secrecy on the employees of state supervisory authorities is 

applied through various means. State laws generally declare that confidential information 

shall be maintained as confidential, and confidential information shall not be disclosed except 

as authorised by state law. However, the professional secrecy obligation on the employees of 

state supervisors can also be applied, or supplemented, by employment law provisions, 

contractual obligations or the internal rules of the state supervisor. In many states, public 

employee obligations and penalties particularly focus on the disclosure of confidential 

information for personal gain. 

In some U.S. states, the law clearly states that confidentiality obligations follow public 

employees upon departure from public services. In other U.S. states, the statutory obligation is 

less explicitly expressed although general requirements to maintain confidentiality and 

professional obligations appear to achieve the same outcome. Auditors and experts acting on 
Page 13 of 130 Pages

behalf of the state supervisory authority are equally covered by the obligation of professional 

secrecy as direct employees of the authority. More generally, both the EU and U.S. regimes 

recognize that professionals such as lawyers, actuaries, accountants and auditors are subject to 

professional and ethical codes independent of those laws and regulations specifically 

concerning the regulation of insurance. Professionals may be subject to a range of 

professional sanctions, including the loss of licensure, for breaching confidentiality 

obligations applicable to their positions. 

While the variation in the structure of state laws dealing with confidential information and 

professional secrecy could be perceived potentially to inhibit information exchange among 

state supervisory authorities in the U.S., this issue has been addressed with the Master 

Information Sharing and Confidentiality Agreement developed under NAIC auspices.3 One 

of the standard clauses of the agreement states that the state insurance regulator requesting or 

obtaining confidential information from another is obliged to protect the information from 

disclosure “at least to the same extent the Confidential Information is protected from 

disclosure under the laws applicable to the Responding Department, and further agrees to take 

all actions reasonably necessary to preserve, protect and maintain all privileges or other 

protections from disclosure related to such Confidential Information.” 

Topic 2: The inter-relationship of FOI provisions with professional secrecy provisions 

Key Commonalities: 

• The relationship between EU Member State FOI provisions and Solvency II, as well 

as the relationship between state FOI laws and confidentiality protections in the U.S., 

results in similar environments for information identified and maintained as 

confidential. The FOI principle is an essential element of appropriate public access to 

government information but general grants of confidentiality exempt from disclosure 

confidential information acquired by the supervisory authority. 

Key Differences:

• Under topic 1 the stronger emphasis on access to information in the US was noted. For 

the state-based regime in the U.S., FOI provisions (with variations from state to state) 

potentially provide broader access to supervisory information, but those same laws 

also provide general and specific confidentiality protections for certain supervisory 

information. One notable difference from this approach is that EU law does not 

enumerate the specific types of information that will be exempted from disclosure but 

expresses it in a more general way. While state laws in the U.S. may categorize 

certain items of information as confidential, such as examination work-papers, EU law 

 

3 Sets out the rules and procedures to be observed for the purpose of information sharing and exchange among U.S.state 

supervisors. The insurance departments of all 50 U.S. States, the District of Columbia, Puerto Rico and Guam are parties to 

this master agreement.
Page 14 of 130 Pages

imposes a general obligation of professional secrecy on public employees and broadly 

exempts confidential information from disclosure. 

Discussion: 

 The Approach in the State-based Regime in the U.S.: 

State freedom of information (FOI) laws in the U.S. generally provide that the public policy 

of the state is for access to public records and other information concerning the official 

activities of public employees and officials. State laws provide for a range of exceptions to the 

disclosure requirements contained within the state FOI law. These exceptions may be 

expressed as specific exceptions within the FOI law, specific exceptions within another 

section of the statutory code (e.g., the state’s insurance code) that directly cross reference the 

state FOI law, or specific declarations in the state insurance code that certain information shall 

be considered confidential by law thereby indirectly excepting the information from the scope 

of the FOI law.

State insurance laws include many specific references to the types of information that will be 

considered confidential. It has already been noted that state laws generally provide that 

examination workpapers and related information, risk-based capital information, and holding 

company act filings and examination information are confidential. In addition to specific 

references, state FOI laws and insurance laws include general references to categories of 

information that are to be considered confidential by law and not subject to subpoena. These 

general references include trade secrets, competitive information, and information provided or 

disclosed under an expectation or agreement of confidentiality. 

State insurance laws generally provide for the commissioner to share confidential information 

pursuant to statutory authorization. The gateways for sharing confidential information will be 

detailed in another section of this paper. State insurance laws generally provide that, as a 

condition to sharing confidential information with other governmental entities, the 

commissioner may be required to enter into a written agreement for that purpose and the 

receiving party must have the authority to maintain the confidentiality of the information 

provided. Similarly, state insurance laws generally provide that the commissioner may 

receive confidential information from other sources, including other regulators, and that such 

information will be maintained as confidential (and thus beyond the scope of the state FOI 

laws) if it is provided with the notice or understanding that the information is confidential 

under the laws of the providing jurisdiction. In some cases, the ability to receive and maintain 

confidential information from another source will be stated generally, either in the FOI law or 

the insurance code; in other cases, states receive this authority through specific insurance code 

references such as those contained within the examination or holding company law. 

There is no single statutory framework to information sharing and confidentiality among U.S. 

states, but this does not create a barrier to confidential information sharing. Some states rely 

on a general legal authority to share and maintain confidential information, while other states 

may derive such authority from more specific (including subject-matter specific) provisions in 
Page 15 of 130 Pages

their statutes. Many state laws provide for a combination of general and specific 

confidentiality protections. Although there may be some variance in specific legal provisions, 

state FOI laws and state insurance laws operate together to preserve the public policy of open 

government and protect sensitive information from inappropriate disclosure. 

 The EU approach: 

FOI laws and confidentiality protections operate similarly in the EU. Member State laws 

generally provide for access for information related to the public administration of laws, but 

analogous provisions providing for the confidentiality of sensitive information often are stated 

in more general terms. Member State laws typically state that virtually all information 

acquired by the regulator in course of its supervisory work will be deemed confidential by 

law. This general grant of confidentiality is embedded in the existing EU core insurance 

legislation – the Reinsurance Directive, Consolidated Life Directive and Third Non-Life 

Insurance Directive4. The professional secrecy and information sharing provisions in 

Solvency II are substantially similar, and requires that information acquired by a supervisory 

authority and its employees will be considered confidential and may not be disclosed except 

as specifically provided. 

Solvency II provides for the circumstances and where applicable procedural requirements for 

disclosing confidential information with what it identifies as permitted recipients. These are 

the exceptions to the obligation of professional secrecy. The details of specific gateways for 

information sharing are covered under Topic 4 in this paper, but Solvency II states that the 

obligation of professional secrecy does not preclude the sharing of information with 

supervisors in other EU Member States. Information sharing agreements, such as MoUs, may 

be concluded with supervisors in non-EU countries provided the information to be disclosed 

is subject to equivalent guarantees of professional secrecy and the information is intended for 

use in the performance of supervisory duties in that country. This would include evidence 

and/or commitments that confidential information would not become subject to disclosure 

through operation of a FOI law in a non-EU country. 

Topic 3: Relationships with national/regional bodies (i.e., EIOPA, NAIC, FIO) 

Key Commonalities: 

• In the U.S. and in the EU, primary regulatory responsibility rests with the U.S. state

insurance departments and the EU Member State supervisory authorities, 

respectively. The functions of both sets of supervisors are supplemented by the NAIC

in the U.S. and EIOPA in the EU. The NAIC and EIOPA, in varying ways, assist the 

supervisory authorities in their regulatory roles and, in doing so, may receive certain 

confidential information pursuant to the laws of the relevant jurisdictions. The FIO 

 

4 Art. 26 of the Reinsurance Directive; Art. 16 of the Consolidated Life Directive (2002/83/EC); Art. 16 of the Third Non-Life Directive as 

amended (92/49/EEC)
Page 16 of 130 Pages

monitors all aspects of the insurance industry, serves on the Financial Stability 

Oversight Council and coordinates and develops U.S. Federal policy on prudential 

aspects of international insurance matters. In carrying out certain of its functions, FIO 

will continue to interact with regulators in the U.S. and in the EU and will participate 

in exchanges of confidential information. 

Key Differences: 

• Under the EU regime, EIOPA has the task of contributing to a common supervisory 

culture by ensuring consistent, efficient and effective application of relevant 

legislation, and has a particular role in EU colleges where it participates as a 

competent authority in its own right. In the U.S., the NAIC is not considered a 

supervisory authority although it coordinates certain activities among state supervisors 

and provides a series of analytical and support services. In both regimes, EIOPA and 

the NAIC may have access to firm-specific information through the respective 

supervisory authorities or other grants of legal authority; however, the EU regime is 

different in that it allows EIOPA to request information directly from (re)insurance 

undertakings in certain instances. 

Discussion: 

 The EU Approach: 

The Regulation that established EIOPA5 applies the same professional secrecy obligations to 

EIOPA and its employees that apply to the supervisory authorities in EU Member States but 

does not include the same gateways for disclosure that are available for national supervisory 

authorities. EIOPA management and staff, as well as consultants engaged by EIOPA, are 

subject to EU laws concerning professional secrecy. EIOPA’s internal professional secrecy 

rules define confidential material as including any information obtained from a national 

supervisory authority that is considered confidential under the laws of the providing 

jurisdiction. EIOPA has access to firm specific information through a number of avenues, 

including EIOPA’s engagement in supervisory colleges, risk identification, crisis management 

and stress testing. Accordingly, EIOPA is required to observe absolute confidentiality with 

respect to such information, and confidential information may be used only for the purposes 

of carrying out EIOPA’s duties as stated in EIOPA’s founding regulation (“EIOPA 

Regulation”). Specifics regarding the future nature of regulatory reporting under Solvency II 

and the extent of EIOPA’s access in this respect will be under discussion in the near future. 

 

5 In the case of EIOPA the Solvency II provisions also need to be seen in conjunction with Regulation no. 1094/2010 which 

mandates the Authority to undertake the following: develop draft regulatory technical standards ; develop draft implementing 

technical standards ; issue guidelines and recommendations; issue recommendations ; take individual decisions addressed to 

competent authorities; in cases concerning directly applicable Union law, take individual decisions addressed to financial 

institutions; issue opinions to the European Parliament, the Council, or the Commission; collect the necessary information 

concerning financial institutions [etc.]
Page 17 of 130 Pages

EIOPA provides aggregated information on the EU insurance market to the European 

Systemic Risk Board (ESRB) to assist it in achieving its key task of preventing or mitigating 

systemic risks, and avoiding episodes of widespread financial distress. The ESRB6 can make 

a reasoned request to EIOPA for data that is not in summary or aggregate form where it 

appears necessary for achieving the Board's tasks, but has not exercised this option to 

date. EIOPA is required to cooperate with the ESRB in having in place adequate internal 

procedures for the transmission of confidential information, in particular information 

regarding individual financial institutions. There is no gateway that would allow national 

supervisory authorities or EIOPA to share firm specific confidential information with the EU 

institutions (European Commission; European Council; European Parliament). Any 

information provided on the insurers' activity in the market would need to be in summary or 

aggregate form so that individual firm's activities cannot be identified.

 The Approach in the State-based Regime in the U.S.: 

In the U.S., the states – rather than the federal government – have primary regulatory 

responsibility for regulating the business of insurance, including for laws related to 

professional secrecy. The Dodd-Frank Act established the Federal Reserve Board of 

Governors (FRB) as the primary consolidated regulator for savings and loan holding 

companies, many of which are firms engaged primarily in the business of life insurance. The 

FRB has entered into memoranda of understanding with state insurance regulators regarding 

insurance entities. Federal government knowledge and involvement in insurance matters is 

enhanced by the establishment of the FIO, which has authority to monitor all aspects of the 

insurance industry and coordinate and develop U.S. Federal policy on prudential aspects of 

international insurance matters. 

While there is no federal body mandating uniformity, state insurance regulators in the U.S. 

operate collectively to establish uniform standards in a variety of areas, including professional 

secrecy (see report of TC6). 

State laws authorize the filing of certain information with the NAIC and declare that certain 

categories of information disclosed to the NAIC will be considered confidential in the 

possession of the NAIC. Although states are authorized to share confidential information 

with the NAIC in certain circumstances, the NAIC does not supersede the regulatory authority 

of the state insurance departments. Accordingly, the NAIC may not independently disclose 

confidential information provided to it by state insurance departments to other supervisory 

authorities, but the NAIC may facilitate such information exchanges among regulators as 

permitted under relevant law. Because the NAIC is not a department or agency of state or 

federal government, the NAIC does not fall within the types of government entities to which 

freedom of information laws may apply.7

 The NAIC occasionally enters into specific 

 

6 Art. 36 in EIOPA Regulation no.1094/2010 read in conjunction with Art. 15 in ESRB Regulation no.1092/2010

7

 The Missouri Court of Appeals affirmed the NAIC’s exemption from Missouri’s freedom of information law in SNL 

Securities, L.C. v. National Association of Insurance Commissioners, 23 S.W.3d 734 (2000).
Page 18 of 130 Pages

information sharing and confidentiality agreements with individual states. The scope of the 

agreement may vary depending on the subject matter of the project for which an agreement is 

required, the confidential information to be provided to the NAIC, and the manner in which 

such information is to be used and/or stored by the NAIC. The NAIC maintains 

confidentiality policies to protect confidential information from disclosure. As a condition of 

employment, all NAIC employees agree to be bound by such policies during – and following 

– their term of employment.

NAIC model laws and the financial regulatory accreditation program provide means for 

establishing standards against which state regulators hold each other accountable. Several 

NAIC model laws provide a legal template for enhancing confidentiality protections as well 

as authorizing the commissioner to disclose and receive confidential information with other

regulators, including international regulators. Exemplary model laws include the Model Law 

on Examinations, the Risk-Based Capital Model Act, the Insurance Regulatory Information 

System Model Act, the Insurance Holding Company System Regulatory Act, and the 

Producer Licensing Model Act. As illustrated below, many of these model laws provide key 

legal elements associated with the NAIC accreditation program. It is important to note, 

however, that states have not necessarily amended their insurance statutes exactly as the 

model laws may propose. For example, many state confidentiality statutes pre-date the 

amendments to the NAIC model laws. States may have determined their existing statutes 

sufficiently provided for the confidentiality and information sharing intended to be authorized 

by the model laws and as required for purposes of the NAIC accreditation program. 

The NAIC Financial Regulation Standards and Accreditation Program (see report of TC6), in 

part, requires states to have certain statutes in place that evidence the legal authority to 

regulate for financial solvency. In order to achieve accreditation, states must have specific 

laws related to information sharing. Accreditation standards and guidelines require the 

insurance department to demonstrate it has the authority to share confidential information 

with state, federal and international regulators; that the department has the authority to keep 

confidential information obtained those same regulators from disclosure; and that the 

department has a written policy concerning information exchanges with other 

regulators. Additionally, states also must demonstrate they have statutes related to 

information sharing on the specific topics of examination authority, risk-based capital and 

holding company systems.

Topic 4: Regulatory gateways for exchange of information 

Key Commonalities: 

• Both regimes include general authorizations to share confidential information with 

other financial regulators, law enforcement officials and other governmental bodies in 

need of such information to perform their duties. Confidential information may only 

be disclosed to such persons if they can maintain confidentiality and/or demonstrate 
Page 19 of 130 Pages

their ability to protect such information from disclosure when the information is in 

their possession. 

• Both regimes acknowledge the possibility of utilizing and disclosing information in 

receivership and bankruptcy actions, prosecuting regulatory and criminal actions, and 

pursuant to certain court actions. 

Key Differences: 

• As stated before, the main difference lies in the differing structural approaches of the 

two regimes as to ways of establishing these gateways. EU law sets out the overall 

common approach while in the case of the state-based regime in the U.S., individual 

state laws provide the gateways for sharing of information and can vary. 

Discussion:

 The Approach in the State-based Regime in the U.S.: 

In the U.S., the circumstances under which confidential information may be shared – either 

generally or for limited purposes – will depend on state law authorizations and be governed 

by any applicable agreements. State laws are generally consistent with NAIC model laws in 

substance. Accordingly, state laws related to sharing confidential information typically 

provide for the following: 

• That certain information shall be deemed confidential and privileged by law; 

• That the information shall not be subject to state freedom of information or open 

records laws;

• That the information shall not be subject to subpoena and shall not be subject to 

discovery or admissible in evidence in a private civil action; 

• That the commissioner or other regulatory officials shall not be permitted to testify in 

a private civil action concerning such information; 

• That the information may be used in furtherance of the commissioner’s official 

regulatory duties; 

• That the commissioner may share the information with other state, federal and 

international regulators and law enforcement agencies, as well as the NAIC, provided 

the recipient agrees to maintain the confidentiality of the information and possesses 

the authority to do so; 

• That the commissioner may receive such information from other state, federal and 

international regulators and law enforcement agencies, as well as the NAIC, and shall 

maintain the confidentiality of the information, provided it is received with the 

understanding that it is confidential under the laws of the providing jurisdiction; and 

• That the commissioner is authorized to enter into agreements governing the sharing 

and use of confidential information. 
Page 20 of 130 Pages

This framework protects confidential information from disclosure through public records 

requests as well as through subpoenas and other discovery methods in private court cases. 

State insurance regulators, however, are generally permitted to share confidential information 

with other state, federal and international insurance and financial regulators and law 

enforcement agencies as well as the NAIC. The result is that state regulators possess broad 

authority to share confidential information with regulatory counterparts that require such 

information in course of their official duties provided the information can be maintained as 

confidential in their possession. To that end, state insurance regulators have entered into a 

Master Information Sharing and Confidentiality Agreement that details the methods of 

information exchanges and information protection among state regulators. Also, state 

insurance regulators have entered into information sharing and confidentiality agreements 

with federal regulatory bodies, including the Federal Reserve, Office of the Comptroller of the 

Currency and the Federal Deposit Insurance Corporation (FDIC). As a result of the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), it is possible that 

state insurance regulators will enter similar arrangements with the FIO and the Financial 

Stability Oversight Council as those bodies carry out their respective responsibilities to 

monitor the insurance industry and oversee financial system stability. Further, several states 

have entered into MoUs authorizing information exchanges with international counterparts.

State laws also permit limited-purpose sharing of confidential information in specific 

situations where outside expertise assists the regulator in furthering regulatory objectives. For 

example, state laws based on the NAIC Model Law on Examinations authorize the 

commissioner to retain experts and consultants and state laws based on the NAIC model 

Insurance Holding Company System Regulatory Act (IHC Model Act) similarly authorize the 

commissioner to retain outside experts to assist with studying proposed acquisitions and 

examinations. These engagements require third-party consultants to agree to maintain the 

confidentiality of any information shared by the regulator. 

State insurance regulators are generally permitted to utilize confidential information in 

administrative and judicial proceedings, though they may be restricted in doing so pursuant to 

the terms of the information sharing agreements. State confidentiality laws generally include 

a reservation that allows the commissioner to use confidential information in furtherance of 

regulatory or other enforcement actions. Therefore, confidentiality does not become a barrier 

to the commissioner enforcing the laws of the state relative to an insurer. Similarly, state 

receivership laws provide for sharing information with the court charged by statute with 

overseeing the administration or liquidation of an insurer and for the confidentiality of 

information that may be disclosed to the court. Additionally, courts utilize protective orders 

and in camera disclosure as additional means of protecting confidential information. 

 The EU Approach: 

Solvency II, and the currently applicable EU directives, provide for a similar information 

sharing framework in the EU. Solvency II permits and promotes the exchange of information 

among insurance supervisory authorities in EU Member States. EU supervisors that receive 
Page 21 of 130 Pages

confidential information from another EU supervisor may only use such information in the 

course of their official duties and for purposes such as monitoring a (re)insurance 

undertaking, imposing sanctions or administrative appeals. EU supervisors may also share 

information with other supervisors in the same Member State in the discharge of supervisory 

functions. At directive level a closed list of bodies/authorities/institutions other than insurance 

supervisors are identified as permitted recipients of supervisory information. These 

bodies/authorities/institutions in the same Member State and other Member States with which 

such information may be shared include banking and financial supervisors, bodies involved in 

bankruptcy or liquidation matters, and auditors. 

Member States are authorized to enter into cooperation agreements providing for information 

sharing with regulatory and supervisory authorities in non-EU countries under certain 

conditions. The primary conditions for sharing of confidential information are that the 

information be subject to guarantees of professional secrecy at least equivalent to those 

included in Solvency II and that the information be used in the performance of supervisory 

duties in those countries. If such conditions are fulfilled, then confidential information may 

be disclosed to bodies involved in bankruptcy and liquidation matters, authorities responsible 

for overseeing statutory audits of financial institutions (including regulators of insurance 

undertakings) and independent actuaries in third countries which are carrying out legal 

supervision. Accordingly, this provision provides a gateway for EU supervisors to exchange 

information with state insurance regulators. This provision does not permit direct information 

exchanges with the NAIC, but such exchanges are not foreseen presently. 

Solvency II and existing directives address information exchanges related to financial stability 

and law enforcement. In order to protect the stability and integrity of the financial system, 

Solvency II authorizes information exchanges between supervisory authorities and those 

authorities responsible for the detection and investigation of breaches of company law. 

Further, confidential information may be disclosed to other governmental departments 

responsible for legislation on credit institutions, financial institutions, investment services and 

insurance undertakings as well as inspectors operating on behalf of such entities. In the above 

cases, information originally obtained from another supervisor may be shared only where 

express consent has been granted. Finally, supervisory authorities may share confidential 

information with central banks and similar bodies as well as public authorities responsible for 

overseeing payment systems.

In limited circumstances, European supervisory authorities may disclose confidential 

information to courts and administrative panels. Such disclosures are restricted to appeals 

against refusal of authorization or licensure, home state supervisor refusals to pass along 

information related to the establishment of a branch or the provision of services in another 

Member State, and appeals against adverse decisions by the supervisory authority. 
Page 22 of 130 Pages

Topic 5: Methods for exchanging information across borders 

Key Commonalities: 

• Both regimes allow for regulators to enter into agreements or MoUs with counterparts 

in other jurisdictions to facilitate the sharing of confidential information. With regard 

to the use and need for co-operation agreements both regimes require or otherwise 

ensure such arrangements are in place in order for supervisors to be in a position to 

share confidential information with other supervisory authorities. In both regimes, 

supervisors are fully empowered to engage in exchange of information across border. 

• Both regimes provide broad discretion to regulators to establish the terms of such 

agreements, including the verification of each regulator’s ability to maintain the 

confidentiality of information received from another jurisdiction. 

• In both regimes supervisors may add to the legal/statutory restrictions additional 

provisions any other safeguards/relevant provisions to ensure legal requirements 

enabling information transfer are satisfied.

Key Differences:

• Differences occur as to methodology and process to be followed. Both regimes 

address the issue of potential sharing of information with third parties, but achieve 

similar outcomes in different ways. EU Member State requirements that the recipient 

of confidential information obtain explicit permission from the originating source 

before sharing with another regulator are often developed as a result of legal 

constraints under the EU directives, while state insurance regulators in the U.S. are 

bound by general legal requirements to respect the confidentiality of information 

under the laws of the providing jurisdiction and the memorialization of this respect in 

written confidentiality agreements.

Discussion: 

 Comparative Description: 

As detailed in previous sections, while within the EU the Solvency II Directive specifically 

allows for direct exchange of information with other competent authorities for insurance 

supervision (i.e. no specific arrangements need to be made/instruments to be signed) in the 

state-based regime in the U.S., the rules and procedures to be observed for the purpose of 

information sharing and exchange among state supervisors are set in the Master Information 

Sharing and Confidentiality Agreement. The Master Agreement satisfies requirements in state

laws that the receiving party of confidential information agree in writing to keep information 

confidential and demonstrate that they possess the statutory authority to maintain the 

confidentiality of such information. 
Page 23 of 130 Pages

For the EU Member States, Solvency II directly provides them with the legal ability to engage 

in cooperation agreements providing for the exchange of information with the supervisory 

authorities of third countries or with a closed list of authorities or bodies of third countries8. In 

the state-based regime in the U.S., there appears to be no material differences between the 

methodology for sharing information among state supervisors and that used for sharing 

information with foreign supervisors. That is, state insurance supervisors in the U.S. utilize 

MoUs to provide the framework and establish expectations with respect to information 

exchanges where they are authorized by law to share confidential information. 

In both regimes, the exchange of confidential information is subject to requesting authority 

fulfilling a clear set of professional secrecy requirements. State insurance supervisors in the

U.S. typically include in the body of the MoU the conditions that apply to the information 

received/passed on to a foreign supervisor which may include inter alia: 

• Limitations on use of confidential information;

• Protections to be set in place to safeguard confidential information from disclosure and 

preserve any privileges;

• Rules for ways information sent/received may be forwarded to another authority/body. 

For the EU supervisors, the signing of the cooperation agreement is conditional to two main 

elements: 

• The third country provides guarantees of professional secrecy at least equivalent to 

those of Solvency II9 ; 

• The information exchanged must be intended for the performance of the supervisory 

task of those authorities or bodies. 

From the EU perspective, cooperation agreements10 are normally not legally binding nor 

enforceable in law. They are statements of intent and if there is a breach of the provisions the 

agreement may be terminated. Nevertheless, cooperation agreements may include the 

conditions of professional secrecy under which EU Authority accepts to pass on the 

information to the third country supervisor.

With regard to expectations regarding onward disclosure by recipient authorities, the practical 

operation of both the EU and the state-based framework in the U.S. provide that the same 

outcome is achieved, i.e. the authority in which the information originates provides its express 

agreement for the forwarding to another authority/body. 

 

8 As defined in Art. 68 (1) and (2) i.e. bodies involved in bankruptcy and liquidation matters, authorities responsible for 

overseeing statutory audits of financial institutions (including regulators of insurance undertakings) and independent 

actuaries in third countries which are carrying out legal supervision 9 As set in Art. 64 i.e. all persons who are working or who have worked for the supervisory authorities, as well as auditors 

and experts acting on behalf of those authorities, are bound by the obligation of professional secrecy meaning that any 

confidential information received by such persons whilst performing their duties shall not be divulged to any person or 

authority whatsoever, except in clearly stated circumstances.

10 usually taking the form of Memoranda of Understanding
Page 24 of 130 Pages

In the EU approach11, even in the presence of an equivalent set of guarantees of professional 

secrecy, the information received by a Member State from another Member State authority 

cannot not be disclosed onwards to a third country supervisor without the express agreement 

of the Member State authority where the information originated and where appropriate, solely 

for the purposes for which Member State authority where the information originated gave its 

agreement. Under the state-based approach12 in the U.S., the requesting authority is required 

to acknowledge that all confidential information, in whatever form, furnished by the 

responding authority remains the property of the responding authority and agrees to take no 

action the effect of which would be to limit, waive or jeopardize any privilege or claim of 

confidentiality, including the disclosure of confidential information, without the express 

written permission of the responding authority. 

Topic 6: Confidentiality of non-public supervisory information received by the FIO

In furtherance of its duties under Federal law, the FIO could be a recipient of non-public 

supervisory information regarding a third country (re)insurance undertaking that pursues 

business in the United States via a U.S. subsidiary. For example, as a non-voting member of 

the Financial Stability Oversight Council (FSOC) established by the Dodd-Frank Act, the FIO 

could receive such non-public supervisory information. In addition, the Dodd-Frank Act 

expressly authorizes the FIO to enter into information-sharing agreements and to analyze and 

disseminate data and information. 

 

The Dodd-Frank Act requires the FSOC, the FIO, and the Office of Financial Research 

(OFR), which is an office within the U.S. Department of the Treasury that was also 

established by the Dodd-Frank Act, to maintain the confidentiality of any data, information, 

and reports submitted under that Federal law. All FSOC members entered into a MoU that 

sets out the understanding of all FSOC members regarding the treatment of non-public 

information. The MoU presumes that non-public information exchanged under its terms is 

confidential. 

 

There are, however, limitations. For example, information or data submitted to Federal 

agencies (which includes the U.S. Department of the Treasury, of which the FIO is a part) is 

generally subject to the provisions of the Federal freedom of information law. That Federal 

law, called the Freedom of Information Act (FOIA), includes exceptions to its public release 

requirements. In addition, the Dodd-Frank Act expressly states that the FOIA, and the 

exceptions under it, apply to the FIO. 

The "Standards of Ethical Conduct for Employees of the Executive Branch" (Standards) and 

the "Department of the Treasury Employee Rules of Conduct" contain restrictions on the 

disclosure and use of non-public information by Treasury employees (which includes FIO 

 

11 Art. 66 par. 2 – Solvency II Directive 12 As per Master Information Sharing and Confidentiality Agreement
Page 25 of 130 Pages

employees). The Standards provide that an employee shall not allow the improper use of 

"nonpublic information" to further his or her own private interest or that of another, whether 

through advice or recommendation or by knowing unauthorized disclosure. In addition, 

employees are prohibited from disclosing official information without authority. Failure to 

adhere to these standards can subject employees to serious sanctions, including removal from 

office. Further, a Federal criminal law called the Trade Secrets Act (TSA) prohibits officers 

and employees of Federal agencies (which include FIO employees) from publishing or 

disclosing trade secrets and other confidential business information to any extent not 

authorized by law. The TSA applies to public disclosures and not intra-governmental 

disclosures of information. A violation of the TSA carries with it the risk of removal from 

Federal employment, fines, and imprisonment of up to one year. Moreover, as an office 

within the U.S. Department of the Treasury's Departmental Offices (DO), the FIO's 

information technology systems are run on DO platforms that are protected at a HIGH level of 

sensitivity under the National Institute of Standards and Technology (NIST) Federal 

information processing standards. The protections afforded such systems are available on the 

NIST website at csrc.nist.gov. 
Page 26 of 130 Pages

2. Group Supervision

Introduction

In general terms, a “group” refers to more than one company that coexists as part of a 

corporate family by virtue of ownership or affiliation. Generally speaking, an insurance group 

is comprised of two or more insurers, but there could be other legal entities involved as well – 

holding companies; subsidiaries or affiliates such as agencies, service providers or third party 

administrators whose business is tangential to that of the member insurers; and other entities 

whose business is unrelated to the insurance operations of the group. 

Again in general terms, group supervision is the application of regulatory oversight to a 

group. Group supervision has become an important aspect of the overall supervisory process 

because group membership can pose unique risks (e.g. reputational risk) as well as benefits 

(e.g. capital options, risk diversification) to one or more insurance undertakings that are 

members of the group. Group supervision therefore is an important complement to solo 

supervision in ensuring policyholder protection. 

In this TC2 report the state-based insurance regulatory regime in the U.S. and the Solvency II 

regime in the EU are compared as to their respective requirements and processes for group 

supervision. For certain U.S. insurance groups, with a bank or thrift, consolidated supervision 

is conducted by the Federal Reserve Board with an emphasis on protecting the depository 

institution. In the EU, financial conglomerates are regulated under the Financial 

Conglomerates Directive (FICOD). 

Executive Summary: 

• Policy Objectives: The over-arching objectives are essentially the same i.e., to protect 

policyholders and to enhance financial stability. That said, there are various 

differences between the EU and state-based U.S. regimes in the manner in which those 

objectives are achieved with respect to group supervision. 

• Scope of Group Supervision: In both regimes, various legal entities within the group 

can be included in the scope of group supervision. The scope of group supervision in 

the EU according to the Solvency II Directive is the entire group, i.e., all entities 

within the group, regulated or otherwise, on a global basis. However, the group 

supervisor has authority to narrow that scope subject to prescribed criteria. In the U.S., 

traditional application of group supervision has focused on the holding company and 

its insurance subsidiaries in the U.S. 

• Supervisory Colleges: Both regimes are generally similar in terms of the operations of 

supervisory colleges; however the role, tasks, powers and content of the group-wide 
Page 27 of 130 Pages

supervisor differ between the two regimes. Moreover, the EU’s Solvency II regime 

provides for a legally binding regime, whereas the U.S. operates a less formal, nonbinding one. Nonetheless, both approaches are intended to drive joint/collaborative 

decisions as to any supervisory actions in the EU at the solo and group level and in the 

U.S. at solo level as well as actions aiming to achieve outcomes at the group level. 

• Supervisory Powers at the group level: Under Solvency II in the EU, there is a single

group supervisor with explicit duties and powers that are applicable to legal entities 

and as well as to insurance holding companies which are located in the European 

Economic Area (EEA). Group supervisors in the EU can request insurance holding 

companies in the EU to hold more capital to cover excessive risk in other jurisdictions. 

However, in the case of an insurance holding company located in a Member State 

other than that of the group supervisor, the group supervisor needs to inform the 

competent supervisor or jurisdiction where the holding company is located with the 

aim to have that supervisor take the necessary action. The U.S. state-based regime 

focuses on the application of powers at the legal entity level and with regard to 

insurance holding company systems on information gathering and examination. 

Insurance regulators have limited extra-territorial powers and rely on communications 

and cooperation with other regulators in other jurisdictions who have the authority to 

take necessary actions. 

• Reporting at the group level: In the EU, reporting is standardized and required for all 

groups on a consolidated basis. Groups have to make similar submissions to that of 

solo undertakings (Solvency and Financial Condition Report (SFCR), Regular 

Supervisory Report, Quantitative Reporting Templates (QRTs), Own Risk and 

Solvency Assessment (ORSA)) but with additional information and data which are 

group-specific. In the state-based regime in the U.S., reporting at the group level is 

focused on extensive intra-group reporting requirements to support required priorapproval processes based on legal standards and financial analysis; consolidated 

financial information is used in the U.S. where available, i.e., for listed companies, 

those that otherwise voluntarily provide such information, and where state insurance 

regulators otherwise require it through filing, analysis or examination processes. 

• Group Capital: The EU has an explicit group capital requirement, whereas the statebased regime in the U.S. does not. 

• Group ORSA: Both regimes have an ORSA requirement that is similar in concept, but 

the EU sets in law the process and key components of the assessment and has 

guidelines that are more prescriptive, whereas in the U.S., more management 

discretion is allowed as to the use of methodologies, with disclosure and justification. 

• Group Governance: In both regimes, companies have to comply with corporate 

governance requirements as set forth in federal and state laws. Publicly-listed 

companies also must abide by rules set by the various stock exchanges. U.S. insurers 
Page 28 of 130 Pages

are subject to state corporate laws, in addition to various governance requirements 

embedded in state insurance laws and regulations. In addition to corporate governance 

requirements, EU Solvency II internal governance requirements also exist, e.g., with 

respect to internal controls and risk management systems as well as key functions. In 

the U.S., supervisors assess those aspects during on-site examinations for the purpose 

of designing examination procedures. 

• Regulation of Financial Conglomerates: For those insurance groups which are Bank 

Holding Companies (BHCs) or Savings & Loan Holding Companies (SLHCs), the 

Federal Reserve has explicit capital requirements. In the EU requirements for 

conglomerates are set in FICOD.

Topic 1: Policy Objectives

Key Commonalities

Both regimes set as a primary policy objective for group supervision the protection of the 

policyholders (of insurers); group supervision is an important part of achieving that goal. In 

neither regime are insurance regulators or supervisors charged to protect shareholders and 

other creditors of the entire group from their investment, credit or other risks. However, the 

two regimes pursue this shared objective in different fashions. Another shared objective of 

group supervision is to enhance the financial stability of the insurance group. While there are 

aspects of group supervision that differ between the two regimes as described in subsequent 

sections of this report, group supervision – as defined in each respective jurisdiction – exists 

in parallel with solo supervision. 

Key Differences

The approach of the state-based regime in the U.S. to group supervision, as embodied in the 

NAIC Insurance Holding Company System Model Act and accompanying regulation (IHC 

Model Act) has been described as a “windows and walls” approach, whereby regulators have 

“windows” to identify relevant group business activity and assess its potential impact on the 

ability of the insurer to pay its insurance contract obligations and “walls” to protect the capital 

and assets of the insurer by requiring insurance commissioner prior approval of material 

related party transactions. Although state insurance regulators do not directly license and 

regulate the holding company, the objective of the windows and walls approach is to ensure 

that a holding company benefits from the profits of the insurance company only to the extent 

the domiciliary regulator determines that material distributions to the holding company will 

not weaken the financial position of the insurer and provides contemporaneous advance 

approval of such “extraordinary dividends.” 
Page 29 of 130 Pages

Under the Solvency II regime, insurance group supervision means supervision of the 

insurance group viewed as an economic entity in and of itself (in contrast to the sum of the 

supervision of the individual entities within the group). 

Topic 2: Concept and Scope of Group Supervision

Key Commonalities

Both regimes strive for including the group perspective into insurance supervision and to 

evaluate intra-group transactions (IGTs), non-insurance business risks and related activity, 

however, the concept and the scope of group supervision differs between the two. 

2.1. Concept of Group Supervision 

Key Differences

In the EU, the Solvency II regime is a legal system that provides for a risk-based, economicbased, and principle-based framework for the supervision of (re)insurance undertakings, as 

well as groups. Under the Solvency II regime, insurance group supervision refers to the

prudential supervision exercised by a group supervisor in coordination with local supervisory 

authorities on an insurance group, including all entities of the group, also non-insurance 

undertakings, viewed as an economic entity in and of itself. 

In the state-based regime in the U.S., recently adopted NAIC amendments to the NAIC’s IHC 

Model Act: (1) extend the state insurance regulator’s authority to access information 

regarding any entity within the insurance holding company system that could pose enterprise 

risk to the insurer; (2) provides state insurance regulators with enhanced information about 

corporate governance; (3) provides reporting by the insurer on material risks within the 

insurance holding company system that could pose enterprise risk to the insurer and 

examination authority on a top-down basis with respect to enterprise-wide risks; and (4) 

provides for participation in supervisory colleges13. If state insurance regulators determine 

enterprise risk to the insurer they can exercise examination authority over any entity within 

the group that poses that enterprise risk. In the EU, supervisory authorities have legal power 

to directly exercise authority over an affiliate or the ultimate parent undertaking.

It is not the aim of state insurance regulators in the U.S. to supervise non-insurers, but to have 

information about them and when needed to be able to examine them for purposes of 

understanding risk to the insurer(s) in the group. Further, state insurance regulators use such 

findings in tailoring supervisory plans for insurers and/or insurance groups. 

 

13 NAIC Model 440 (HC Act) Section 7 provides for participation in supervisory colleges. 
Page 30 of 130 Pages

In the EU, the definition of the group according to Art. 212 of the Solvency II Directive 

includes any kind of related undertaking, even non-regulated and non-financial, although the 

scope of group supervision may be applied more narrowly – see Section 2.2. 

2.2. Scope of Group Supervision 

Key Differences

In the EU, the global principle applies under which all undertakings within a group are 

covered by group supervision (see Art. 213(2)(a-d)). The scope of group supervision therefore 

includes undertakings in third countries, although the group supervisor’s powers vary 

depending on whether the holding company is located within or outside of the EU – see 

Section 5.2. 

The EU regulation, however, allows for an exclusion of entities from group supervision. The 

decision on this issue is taken by the group supervisor after consulting with the college of 

supervisors and is based on the criteria of Art. 214 (2). Where those criteria are met, the group 

supervisor may decide on a case-by-case basis to exclude an undertaking from the group 

supervision. 

The state-based regime in the U.S. employs the lead state concept, which could include more 

than one lead state, but encompasses all U.S. domiciled (re)insurers within a group. The riskfocused examination approach (see TC7) has added requirements that examiners consider 

group risk to the insurer, consistent with the “windows and walls” approach taken generally in 

the state-based regime. Additional consideration is given by examiners during the 

examination process to information about the group as a whole, its composition and structure, 

the degree to which capital could be allocated across the group and to provide additional 

support to the insurer if needed, restraints on the movement of capital, etc. Once the changes 

to the NAIC IHC Model Act have been enacted, state insurance regulators will have access to 

the insurer’s affiliates as reasonably necessary to ascertain the financial condition of the 

insurer, including the enterprise risk to the insurer by the ultimate controlling party, or by any 

entity or combination of entities within the insurance holding company system, or by the 

insurance holding company system on a consolidated basis or to determine compliance with 

the holding company act. 

In the state-based regime in the U.S., the IHC Model Act applies to any Insurance Holding 

Company System which is defined as an affiliation of two or more persons, any one of which 

is an insurer. A “person” is defined as an individual, a corporation, a limited liability 

company, a partnership, an association, a joint stock company, a trust, an unincorporated 

organization, any similar entity or any combination of the foregoing acting in concert, but 

shall not include any joint venture partnership exclusively engaged in owning, managing, 

leasing or developing real or tangible personal property. 
Page 31 of 130 Pages

Topic 3: Key Elements of Group Supervision 

3.1 Group Capital Requirements 

Key Commonalities

The TC3 report covers capital calculation methodologies and requirements at the solo level 

for both regimes. Only to the extent that there are additional or different capital requirements 

at the group level are such key aspects covered in this section of the TC2 report. 

Both in Solvency II at the group as well as at the solo level and in the state-based U.S. regime 

at the solo level, capital requirements are supported by the requirements on fit & proper, 

supervisory review, reporting to supervisors, and market discipline through public disclosure. 

Both use capital measures in combination with other tools that can also trigger regulatory 

action. 

The primary regulatory objective of both regimes is to protect policyholders. To achieve this 

objective, both regimes have capital requirements that provide thresholds for corrective and 

regulatory action, but they are determined differently. 

Key Differences

The Risk Based Capital (RBC) formula used in the state-based regime in the U.S. is factorbased, generated from historical industry-wide data experience, with some use of internal 

models regarding interest rate and market risk. The NAIC’s RBC formula derives a RBC ratio 

where the parent company is an insurance company; otherwise, and when necessary, U.S. 

regulators follow an aggregation method for assessing overall insurance group capital. 

However, unlike the Solvency II Directive, the state-based regime in the U.S. does not 

provide for an explicit group capital requirement. Nevertheless, U.S. supervisors will have 

insights into an insurance holding company’s own assessment of their group capital needs and 

will gain a better understanding of their group’s overall capital adequacy from management’s 

perspective via the ORSA – see section 3.6. 

In the EU regime, there is an explicit Group Solvency Capital Requirement (Group SCR). The

key aspects of the EU’s group solvency assessment include a “total balance sheet approach”; 

use of the accounting consolidation method as the default approach calibration to a confidence 

level of 99.5% over a one-year period; use of a standard model with the option for a group to 

use an internal model with approval of the group supervisor; group SCR covers all 

quantifiable risks relating to existing business and also to new business expected to be written 

in the 12 following months (e.g., for liability and other long-tail business, including a 

projection of future cash flows); and a risk diversification benefit, which may be limited due 

to constraints on the assessment of risks on a consolidated basis, limited access to information 

or lack of fungibility or transferability of capital within the group. Although the accounting 
Page 32 of 130 Pages

consolidation method is the default approach, the group supervisor may allow the deduction

and aggregation method or a combination of both methods, subject to certain criteria. 

In the state-based regime in the U.S., risk aggregation is carried out in two ways: The first is 

through RBC, to the extent there is ownership of a downstream insurer by another insurer. 

Risk aggregation in that situation is handled in the content of RBC. The NAIC RBC does not 

address aggregation across insurer affiliates. Also, in a group ORSA, the group is expected to 

address aggregation, but there is not a prescribed manner in which to do so. 

Diversification is considered in RBC through the covariance adjustment, and there would be 

some impact as well across entities in the case of a downstream insurance subsidiary – but not 

across other insurance or non-insurance affiliates. Also, in a group ORSA, the group is 

expected to address diversification in a manner as determined appropriate by the insurance 

group’s executive management. 

State insurance regulators have access to and monitor consolidated financial statements for 

publicly listed companies and certain other groups. With recent changes to the IHC Model 

Act, state insurance regulators will also have access to Enterprise Risk Reports submitted by 

the insurers that will provide information as to any developments on the assessment of risk 

across the group that may impact on an insurer. 

In the EU, participations in undertakings outside the financial sector (over which the group 

has a dominant influence and in which it has significant interests) should be consolidated 

using the equity method. In this context, the relevant capital invested is calculated on the basis 

of the value of the participation (using variables such as the equity risk charge and the 

concentration risk charge). The treatment of the Group SCR then equates to that of the 

individual SCR. 

If the participation in an insurance or reinsurance undertaking amounts to a significant 

influence (>20%), its share of the Group SCR will be calculated as the equity stake multiplied 

by the individual SCR for this participation. The contribution of insurance undertakings and 

Special Purpose Vehicles (SPV) over which the group has a significant influence constitutes 

the non-controlled participation SCR. Without taking diversification effects into account, this 

is added to the SCR for consolidated insurance and reinsurance entities. In the U.S., if the 

participation in an insurance or reinsurance undertaking creates control (presumed to exist at 

>10% or also through contract or otherwise), the equity method of accounting is applied and 

the RBC formula applies a risk factor to the resulting investment balance. 

Under Solvency II, in specific circumstances where the risk profile of the group is not 

adequately reflected, a capital add-on to the Group SCR may be imposed under Art. 232a. 

Under the state-based insurance regulatory regime in the U.S., there is no explicit group 

capital requirement and, by extension, no explicit capital add-on requirement either14; 

 

14 For BHCs and SLHCs in the U.S. under the supervision of the Federal Reserve reference is made to the last section of this 

TC2 report.
Page 33 of 130 Pages

however, where financial analysis indicates potential risk to insurance undertaking(s) in a 

group due to capital issues or concerns at the group level, state insurance regulators are 

authorized to take action with regard to the undertaking so as to protect its policyholders by 

strengthening the walls between the undertaking and the group risk, and/or by applying such 

pressure on the undertaking as is necessary so as to cause the holding company to submit and 

comply with a capital remediation plan that is acceptable to the regulator. 

In the EU, in case of a financial conglomerate the group capital requirements will be 

calculated for each part (e.g., banking or insurance part within the group) separately according 

to their sector-specific requirements. 

3.2. Group Own Funds (available capital) 

Key Commonalities

In the case of a financial conglomerate the recognition of diversification effects between two 

different sectors at the group level (insurance sector and banking sector) is legally prohibited 

in the EU Solvency II approach as well as in the U.S. approach. The group own 

funds/available capital will be calculated according to their sector-specific requirements. 

In both regimes, there are limits and regulatory oversight that are intended to assure that the 

capital of an insurance undertaking is not diminished inappropriately through activities of the 

group, e.g., via extraordinary dividends or through intercompany transactions on terms that 

are not fair and reasonable. 

Key Differences

State insurance regulators in the U.S. require the filing of statutory-basis financial statements 

by solo insurers, but generally require consolidated filings by groups on an as-needed basis

(some groups file consolidated statements on a voluntarily basis). The Solvency II approach 

for the own funds adopts a tiering system (Tier 1, Tier 2 and Tiers 3) and allows for 

aggregation at the group level. In order to be regarded as eligible own funds at group level, 

they must be fungible and transferable without any legal obstacles. Where the supervisor 

considers that certain own funds eligible for the SCR of a related insurance or reinsurance 

undertaking cannot effectively be made available to cover the Group SCR, those own funds 

may still be included in the Group SCR calculation but only in such amount that is eligible for 

covering the SCR of the related undertaking (Art. 222 of the EU Solvency II Directive). 
Page 34 of 130 Pages

3.3. Group Reporting and Disclosure 

Reporting and disclosure are aspects of insurance supervision that are covered in more detail 

in TC5. However, matters that are specific to reporting by groups are covered below. 

Key Commonalities

Both regimes have requirements for group reporting with a particular focus on group-specific 

risk and IGTs (see separate section 3.4 below as regards IGTs). 

Both regimes disclose publicly some information. For example, in the U.S. there is public 

disclosure of significant IGTs. In the EU, there is public disclosure of the group balance sheet, 

Group SCR, group own funds, group risk concentration and qualitative information on 

relevant operations and transactions as well as governance arrangement that affect IGTs. 

Both regimes will require an ORSA report, however, the expected scope and legal nature of 

its requirements is different.

Key Differences

In the EU regime, groups have to make similar submissions to that of solo undertakings 

(SFCR, Regular Supervisory Report, QRTs, ORSA) but with additional information and data 

which are group-specific. In the state-based regime in the U.S., there is submission of specific 

insurance holding company filings which is distinct from the individual requirements; this 

includes financial information of the ultimate controlling person, and information to enable an

assessment of fit and proper requirements, with rights of inspection (i.e., examination). 

There are differences in the level and details of information reported. Financial statements and 

exhibits that comprise the annual statement filing to state insurance regulators in the U.S. are 

prepared on a solo basis. However, the IHC Model Act, which has been adopted in all states, 

provides authority for the state regulator to require or request financial statements of all 

entities within the insurance holding company system. The act specifically mentions that the 

requirement can be met by submitting audited financial statements as filed with the U.S. 

Securities and Exchange Commission (SEC). Approximately 60% of the U.S. premium is 

written by groups that are public companies and which therefore file consolidated financial 

statements with the SEC. Non-listed groups that prepare consolidated financial statements in 

the ordinary course of business also would submit consolidated filings to meet the 

requirement. All other groups must submit stand-alone financial statements of all entities 

within the group. 

In the EU regime the required reports apart from the prudential information contain additional 

and more specific information regarding: the group’s business and performance; the group's 

system of governance (for example information on material specific risks at group level); and 

the group’s capital management (for example, qualitative and quantitative information on the 

SCR and own funds, or a description of special purpose vehicles, or SPVs, within the group). 
Page 35 of 130 Pages

In the EU Solvency II regime, the groups are required to disclose publicly a report on the 

solvency and financial condition (including a description of the legal structure, governance 

and organizational structure of the group) at the level of the group. There also are other 

requirements on the type of information that has to be publicly disclosed. In the state-based 

regime in the U.S., an Enterprise Risk Report will apply to certain large insurers and/or 

insurance groups. As compared to the ORSA Report in the U.S., the Enterprise Risk Report is 

more prescriptive and qualitative, asking for factual information about changes or 

developments of significance, particularly those with negative implications. A schedule in the 

Annual Statement also publicly discloses the nature and amounts of transactions between a 

U.S. insurer and any of its affiliates, as well as an organization chart of the entire group. 

3.4. Intra-Group Transactions 

Key Commonalities

Detailed statutory requirements for reporting certain IGTs (e.g., dividends, cost-sharing 

contracts, reinsurance agreements, etc.) are prescribed in the EU and in the state-based regime 

in the U.S. The EU Solvency II regime calculates in the standard formula the credit and 

default risk of entities. The U.S. RBC approach considers the credit and default risk as well; 

credit risk is addressed through the aggregation and diversification assumptions and 

methodologies that will be incorporated into a group’s ORSA. In the EU Solvency II regime 

when the group supervisor assesses the appropriateness of the use of the deduction and 

aggregation method, the group supervisor should consider the presence of IGTs between the 

entities that will be using the deduction and aggregation method. 

Key Differences

The thresholds and frequencies for reporting IGTs vary between the two regimes. 

In the state-based regime in the U.S., the IHC Model Act contains a list of transactions, with 

various thresholds, that need to be prior-approved by the domestic insurance commissioner 

(e.g., sales, purchases, exchanges, loans, extensions of credit, or investments, and any other 

transaction that may be material as defined in the Act). The group annual filing includes a 

statement that transactions entered into since the filing of the prior year’s annual registration 

statement are not part of a plan or series of like transactions, the purpose of which is to avoid 

statutory threshold amounts and the review that might otherwise occur. Annual filings include 

an organization chart of the group and amounts for intercompany transactions.

The EU supervision of IGTs requires all significant IGTs by insurance and reinsurance 

undertakings within a group, including those performed with a natural person with close links 

to an undertaking in the group to be reported after-the-fact on a regular basis and at least 

annually to the group supervisor. The group supervisor, after consulting the other supervisory 
Page 36 of 130 Pages

authorities concerned and the group, identifies the type of significant IGTs insurance 

undertakings in a particular group must report in all circumstances. 

Regarding the assessment of the IGTs in the EU Solvency II regime, they are assessed 

primarily at the group level but also at the solo level. For the state-based regime in the U.S., 

generally, IGTs have traditionally been assessed from the perspective of the solo insurance 

entity. Going forward, and to the extent that they may have a material impact on the holding 

company, a group ORSA assessment pursuant to the state-based regime in the U.S. may 

address them as well; however, the manner in which that may occur is not prescribed. 

3.5. Risk Concentrations

Key Commonalities

In both regimes risk concentrations at group level have to be considered and reported. 

In both regimes supervisors may impose limitations on risk concentrations, however, in each 

regime the imposition of such limitations is handled differently at the solo and group levels. 

At the solo level in both regimes, there is required reporting of credit exposures, including 

reinsurance, and regulators/supervisors can impose limitations directly. 

Key Differences

In the state-based regime in the U.S., risk concentrations are reported by solo insurers in 

audited financial statement disclosures15 and by groups in disclosures in SEC filings16. 

The EU Solvency II regime requires insurance undertakings or insurance holding companies 

to report at least annually to the group supervisor any significant risk concentration at the 

level of the group. The group supervisor, after consulting the supervisors concerned and the 

group itself, may impose appropriate thresholds for the reporting of risk concentration based 

on solvency capital requirements, technical provisions, or both. Specific requirements are 

imposed on the group supervisor who, while reviewing the risk concentrations, particularly 

monitors the possible risk of contagion in the group, the risk of a conflict of interests, and the 

level or volume of risks. 

In the state-based regime in the U.S., risk concentrations are reported at the solo level at least 

annually through various Annual Statement schedules, the RBC report, and other financial 

information included in the financial statements. Going forward, the ORSA (to be required of 

larger groups and (re)insurers) is expected to address concentration risk at group level in the 

context of the company’s own capital adequacy assessment for the group. While the holding 

company in its Enterprise Risk Report is not mandated to report risk concentrations per se, it 

 

15 AICPA Statement of Position 94-6, Disclosure of Certain Significant Risks, and Uncertainties; FASB Statement No. 107, 

Disclosures About Fair Value of Financial Instruments. 16 Notably, Form 10-K instructions relating to disclosure of Risk Factors.
Page 37 of 130 Pages

does however require identification of material concerns of the insurance holding company 

system raised by the supervisory college, if any, in last year; and of any material activity or 

development of the insurance holding company system that, in the opinion of senior 

management, could adversely affect the insurance holding company system. 

3.6. The Group ORSA (Own Risk and Solvency Assessment) and Enterprise Risk 

Management 

Key Commonalities

In both regimes, the ORSA will be reported at least on an annual basis. Group ORSA in 

general refers to the processes and procedures used to identify, assess, monitor, manage, and 

report the short and long term risks a (re)insurance group faces or may face and to determine 

the group’s capital adequacy (“prospective solvency assessment”) from the company-own 

perspective.

Key Differences

While an ORSA will exist in both regimes, the primary difference is that the legal 

requirements are more prescriptive in the EU, whereas in the U.S., more discretion will be left 

to management to determine (and justify) the specific methodologies chosen. 

In the state-based regime in the U.S., an ORSA Guidance Manual has been adopted that 

provides regulators’ expectations for insurers to complete their ORSA. The ORSA Guidance 

Manual is required to be followed under the NAICs Risk Management and Own Risk and 

Solvency Assessment Model Act, which was adopted by the NAIC in September 2012. The 

NAIC’s ORSA Guidance Manual requires an internal assessment of the risk associated with 

the insurer’s current business plan and management’s assessment of the sufficiency of capital 

resources to support those risks. The Guidance Manual, and insurers ORSA Summary Reports 

and risk management processes, are expected to evolve over the coming years. The ORSA 

process will be unique to each company, reflecting its business, strategy and approach to 

enterprise risk management (ERM). 

In the EU, according to Art. 256, an annual ORSA is required of all entities at the solo level 

and at the group level that fall under the Solvency II regime but can also be required each 

time the company risk profile changes significantly. According to Art. 45, the ORSA 

assessment needs to cover at least: the overall solvency needs taking into account the specific 

risk profile, approved risk tolerance limits and the business strategy of the undertaking; the 

compliance, on a continuous basis, with capital and technical provision requirements; and the 

significance with which the risk profile of the undertaking concerned deviates from the 

assumptions underlying the SCR, calculated with the standard formula or with its partial or 

full internal model. Also, the group ORSA has to explain the difference between the 

calculated capital requirement at the group level and the sum of the capital requirements of all 
Page 38 of 130 Pages

entities in the group. In other words it requires the insurance group to reflect on the outcome 

of the calculation of the group capital requirement and its own risk profile from a group 

perspective.

In the state-based regime in the U.S., the ORSA is required annually of larger insurers and 

insurance groups (collectively the entities required make up over 90% of the U.S. premium 

volume), and can be performed at either the solo level, or by the insurance group, provided all 

insurance legal entities within the group are included in the collective filings made available 

to the commissioner. In addition, the group capital assessment within the ORSA Summary 

Report may be requested throughout the year if material changes occur. The NAIC’s ORSA 

Guidance Manual provides a framework, and allows discretion for insurers/groups to develop 

an ORSA process that is considered by management to be suitable and appropriate for their 

use. The process will be unique to each company, reflecting its business, strategy and 

approach to ERM. That will extend, according to the NAIC Guidance Manual, to include a 

company own approach to group capital assessment. The depth and detail is likely to be 

influenced by the nature and complexity of the insurer/group. 

Topic 4: Group System of Governance, Including Risk Management 

Key Commonalities

In both regimes, publicly listed companies have to comply with corporate governance 

requirements17 (federal, state, and stock exchange). 

In both regimes, if changes have occurred in risk management systems since the last 

examinations, or if there is a level of concern with respect to the insurer, the analyst or 

supervisor will follow up and assess the changes that have occurred in the insurer’s risk 

management function, which could further impact the supervisor’s plan as to the nature, 

timing or extent of additional analytical or examination processes. 

Key Differences

In the EU, according to Art. 246, all of the governance requirements of Art. 41 to 49 apply 

mandatorily at the solo as well as the group level. The system of governance in the Solvency 

II Directive imposes requirements with regard to two systems, the risk management system 

(including the ORSA) and the internal control system, as well as requirements on key 

functions. These must – at a minimum – include the risk management, compliance, audit and 

actuarial functions and must fulfil fit and proper requirements. The risk management and 

internal control system and reporting procedures have to be implemented consistently in all 

the undertakings included in the scope of group supervision so that those systems and 

reporting procedures can be controlled at the level of the group. 

 
Page 39 of 130 Pages

For the state-based regime in the U.S., governance requirements apply most directly at the 

solo level, but the IHC Model Act provides for review of information and approval pertaining 

to the ultimate controlling person and, if a corporation, its officers and directors. Holding 

companies, subsidiaries and affiliates are also subjected to general state laws pertaining to 

governance, and those that are publicly listed are also subjected to additional requirements by 

the stock exchanges as well as to federal laws (e.g., the Sarbanes Oxley Act) and regulations 

(e.g., by the Securities and Exchange Commission). 

The state-based regime in the U.S. considers enterprise risk in many ways, including through 

the IHC Model Act, the proposed Risk Management and ORSA Model Act, but also through 

additional inquiry including within the risk-focused surveillance process. The IHC Model Act 

requires the ultimate controlling person/entity to file an annual Enterprise Risk Report which 

identifies to the best of their knowledge and belief, the material risks within the insurance 

holding company system that could pose enterprise risk to the insurer. In that context, the Act 

defines “enterprise risk” as any activity, circumstance, event or series of events involving one 

or more affiliates of an insurer that, if not remedied promptly, is likely to have a material 

adverse effect upon the financial condition or liquidity of the insurer or its insurance holding 

company system as a whole, including, but not limited to, anything that would cause the 

insurer’s RBC to fall into company action level. 

In the EU, the insurance group is viewed as an economic entity in and of itself and therefore 

group risk will reflect all the risks to which the group is or may be exposed. In the U.S., the 

proposed Risk Management and ORSA Model Act requires the insurer to maintain a risk 

management framework to assist the insurer with identifying, assessing, monitoring and 

reporting on its material and relevant risks. The requirement may be satisfied if the insurance 

group of which the insurer is a member maintains a risk management framework applicable to 

the operations of the insurer. Finally, as noted above, the states’ coordinate their on-site 

examination procedures, including an assessment of the group’s corporate governance 

structure, group-level financial control policies and procedures, and risk management 

framework. This review is characterized as an assessment versus a compliance review, and 

leads the examiners to then tailor their examination procedures according to the strengths and 

weaknesses of the group’s governance and risk management systems. 

Topic 5: Colleges - Delegation of Powers to Group Supervision/Supervisory Powers at 

Group Level/the Group-Wide Supervisor Concept 

Key Commonalities

In both regimes a group-wide/lead supervisor/regulator concept and the supervisory college 

concept (initiating, membership, participation, function, on-going activities, crisis 

management plans, information exchange), playing a major role in group supervision, have 

been established. 
Page 40 of 130 Pages

In the EU there has been a long-standing practice of cooperation between supervisors of all 

European insurance groups in Coordination Committees. This practice has been expanded 

upon and given a legal basis in Solvency II. Convergence is underway as state insurance 

regulators in the U.S. are designating group supervisors (also referred to as lead state 

regulators) to either lead or participate in supervisory colleges, and, going forward, when 

requirements for ORSA and enterprise-risk reporting by groups will be enacted. 

Key Differences

The role, tasks, powers and content of the group-wide supervisor differ between the two 

regimes and are explained in the following sections. 

5.1 Key Characteristics of the College System

5.1.1 Supervisory Collaboration: 

The EU has a legally binding college system. Colleges have a long history and practice since 

their introduction with the Helsinki list in 2000. The Solvency II Directive institutionalises 

and reinforces this operating mode by establishing "colleges of supervisors" under the 

chairmanship of the group supervisor, selected according to the procedure described in the 

Solvency II Directive. Thus, in the EU, the responsibilities of the college are based in law and 

applied to all groups including those with international operations. In a number of cases in the 

Solvency II Directive, where a joint decision on an application is required, the supervisory 

authorities concerned are expected to do everything within their power to reach such a

decision. However, if this does not seem to be possible, the Solvency II Directive assigns 

EIOPA, who is a non-voting member of all existing colleges, the role of binding mediator. 

The Solvency II Directive also introduces a range of provisions obliging all supervisors 

involved to exchange information automatically and on demand, and to consult before any 

important decision. 

The state-based regime in the U.S. has a less formal, non-binding framework for facilitating 

supervisory collaboration and coordination across a group of insurers. The NAIC serves the 

states in a coordinating role with a lead state framework, which was further developed 

following the passage of the U.S. Financial Services Modernization Act in 1999 (a.k.a. 

Gramm-Leach-Bliley Act). With the introduction of the revised IHC Model Act, states are 

beginning to form supervisory colleges on an international and regional basis. The state-based 

U.S. regime does not contain a formal dispute resolution mechanism, as each state preserves 

its regulatory power over the licensed insurance entity; though, every effort is made to reach a 

joint decision on the appropriate regulatory course of action. 
Page 41 of 130 Pages

5.1.2 Determination of the Group Supervisor: 

The EU regime prescribes the determination of only one group supervisor who is appointed 

from among the supervisory authorities involved in the supervision of the group in accordance 

with Art. 247 and usually by the supervisory authority which has authorised the insurance or 

reinsurance undertaking that heads the EU group. The criteria for determining the group 

supervisor may be deviated from in certain situations and subject to a joint decision by the 

college of supervisors. EIOPA may be consulted and in the case of a dispute in the college, 

EIOPA will give advice during a process of binding mediation. As a consequence, for each 

group, a single authority is appointed with powers of decision and coordination. 

In the state-based regime in the U.S., the designation criteria are set forth in the NAIC 

Financial Analysis Handbook. Historically, there may have been more than one state 

designated as a lead state; however, recent NAIC initiatives (e.g., revised IHC Model Act, 

enhanced accreditation standard regarding financial analysis) have had the effect of reducing 

the number of states designated as such. Presently, all U.S. insurance groups with an 

international presence have a single lead state, with a few exceptions. 

The NAIC Financial Analysis Handbook provides guidance regarding the role of the lead 

state; however, the lead state does not possess any additional regulator powers. 

5.1.3 Duration of Supervisory Colleges: 

In the state-based regime in the U.S., the IHC Model Act provides that a college can be 

temporary or a permanent form for communication and cooperation; however, as a practical 

matter in operation they are permanent. In the EU a college is permanent.

5.2 Actions and Powers of Lead/Group Supervisors

Key Commonalities

In the EU, Art. 258 provides that where it is necessary the group supervisor can apply 

enforcement measures at the level of the insurance holding company. Where the group 

supervisor is not one of the supervisory authorities of the Member State in which the 

insurance holding company or the undertaking has its head office the group supervisor shall 

inform those supervisory authorities of its findings with a view to enabling them to take the 

necessary measures. Under Solvency II all Member States are required to ensure that 

sanctions can be imposed on insurance holding companies and persons managing those 

companies where Solvency II measures have been infringed. In the state-based regime in the 

U.S. there is no similar mandate, but the practice has been similar, i.e., that where the lead 

state/group supervisor (or any state supervisor overseeing a (re)insurance undertaking that is 

part of a group) sees the need to take action with respect to a holding company located outside 
Page 42 of 130 Pages

their state, they communicate with the state insurance regulator in that state with the view to 

enabling them to take the necessary measures. 

In both regimes, there are limitations as to the ability of a lead state/group supervisor to take 

action on an extra-territorial basis. Both regimes therefore rely on communications and 

coordination with supervisors in other jurisdictions, a process which is enhanced through 

supervisory colleges. 

Key Differences

The EU regime provides for certain legally binding rights and duties of the group supervisor. 

Under Solvency II, the group supervisor oversees the review and assessment of the financial 

situation of the group; of its compliance with the rules on solvency and of risk concentration 

and IGTs; of its system of governance including the group-wide risk management, internal 

controls, reporting procedures and Group ORSA, fit and proper requirements of key 

individuals; planning and coordination of supervisory activities in going concern as well as in 

emergency situations, in cooperation with other supervisory authorities concerned; and 

serving as chair of the college of supervisors. In the EU the dialogue at the group level is 

conducted by the group supervisor; the legal entity supervisor is responsible for the 

supervision of its national legal entity, but not for the communication towards the parent 

company. The solo supervisor will provide the group supervisor with any relevant data for his 

tasks and vice versa. The group supervisor uses the college as a platform for cooperation, 

exchange of information and consultation processes. 

The U.S. lead state, or host states generally, do not possess regulatory powers to take over or 

pull the license of a holding company. Rather, the lead state assists other states in 

coordinating analyses and regulatory reviews of insurance groups. There is an increased focus 

on conducting coordinated on-site examinations, whereby selected solo insurers within a 

group (or at least those under common management, systems, controls and risk management) 

would be examined concurrently; such efforts are coordinated and led by the lead state. The 

lead state reviews and assesses the financial situation of the group. The lead state and the host 

state have review and pre-approval authority of significant IGTs involving insurers of the 

group that are domiciled in their respective states. Each domestic state has a holding company 

act in place that provides for the filing of information to assess the qualifications of owners 

and senior management. In addition, and going forward under the recent changes to the IHC 

Model Act (when enacted by states), the state insurance regulator will have the ability to 

examine the insurer’s affiliates as reasonably necessary to ascertain the financial condition of 

the insurer, including the enterprise risk to the insurer by the ultimate controlling party, or by 

any entity or combination of entities within the insurance holding company system, or by the 

insurance holding company system on a consolidated basis, or to determine compliance with 

the holding company act. With forthcoming enabling legislation, states will also have access 

to ORSA reports as to be regularly performed by larger groups and undertakings. 

There also are the following key differences between the two regimes: 
Page 43 of 130 Pages

• The manner in which the group supervisor is determined is set forth in law in the EU; 

in the state-based regime in the U.S. the lead state regulator (it could be more than 

one) is determined through an established process administered by the NAIC. 

• In the EU the group supervisor has specific powers on legal entities and the group 

itself (holding company located in the EEA).

• In the EU, in an EU college, the group supervisor has responsibilities, some stemming 

directly from EU law, others delegated from the colleges’ members, including the 

final decision making within an established process. In the state-based regime in the 

U.S., the lead state may work collaboratively with the other states with domestic 

insurers in the group. 

• In the EU, the group supervisor may request that the holding company acquire more 

capital; in the state-based regime in the U.S., if group capital concerns exist they are 

addressed through regulatory pressure on the holding company’s insurance 

subsidiaries. 

• EU Member States are required by the Solvency II Directive to rely on the group 

supervision exercised by a third country supervisory authority over a group 

headquartered in their jurisdiction where the group supervision regime is found to be 

equivalent to that under Solvency II. 

Topic 6: Federal Supervision in the U.S. of Financial Conglomerates that own 

Depository Institutions and Insurance Groups, and Supervision of Financial 

Conglomerates in the EU 

The preceding discussion in this TC2 report compared the current state-based insurance 

regulatory regime in the U.S. to the Solvency II regime in the EU with respect to group 

supervision. In addition, for certain insurance groups – those that are controlled by companies 

that also own a bank or savings association and are thereby defined as BHCs or SLHCs – 

consolidated supervision is provided at the federal level in the U.S. by the Federal Reserve. 

That means that this approach is not applicable to purely insurance groups. 

Specifically, the Federal Reserve applies “consolidated supervision” to all BHCs and to all 

SLHCs with a particular emphasis on protecting the depository institution. Such consolidated 

supervision is established under the “functional regulatory” regime set forth in U.S. law under 

the Bank Holding Company Act and the Savings and Loan Holding Company Act. Such 

consolidated supervision currently applies to about 25 insurance companies that own a bank 

or savings and loan association. The Federal Reserve, as the “umbrella supervisor” under 

the functional regulatory regime in the U.S., directly supervises such BHCs and SLHCs on a 

consolidated basis, including all subsidiaries and their relationships with joint ventures and 

other non-controlled companies. Under this regulatory framework, the Federal Reserve 
Page 44 of 130 Pages

generally defers to the “functional regulator” of the regulated subsidiaries. These functional 

regulators include state insurance regulators directly supervising insurance companies and the 

federal banking agencies (Office of the Comptroller of the Currency and FDIC) directly 

supervising bank or thrift subsidiaries of a BHC or SLHC, respectively. 

The Federal Reserve has legal authority, initially granted under the Gramm-Leach-Bliley Act 

and strengthened by the Dodd–Frank Act, to obtain reports directly from, and take direct 

supervisory and enforcement action with regard to, functionally-regulated subsidiaries. The 

Federal Reserve exercises this authority if it determines that it is necessary to take such action 

in accordance with statutory criteria. Furthermore, the Federal Reserve exercises direct 

supervision over subsidiaries that do not have a direct functional regulator, whether within or 

outside of the United States. 

Those BHCs and SLHCs subjected to consolidated supervision by the Federal Reserve are 

statutorily required to comply with consolidated capital requirements under the Federal 

Reserve’s capital rules. These capital requirements generally are the same as the capital 

requirements imposed by all three federal banking agencies on banks and thrifts. These 

standards are based on the Basel Accord, including the Basel I, II, II.5 and III agreements. 

The supervised insurance companies within these holding companies continue to be subject to 

the solo insurance capital requirements imposed by the state insurance regulators. 

Furthermore, under the Collins Amendment, adopted as section 171 of the Dodd-Frank Act, 

all BHCs and SLHCs are subject to minimum consolidated capital requirements on all assets. 

These assets include all assets of insurance companies that are also subject to insurance 

capital requirements under the NAIC RBC framework. Accordingly, the leverage and RBC

requirements applicable to banks sets a floor capital requirement for all BHCs and SLHCs 

without regard to the capital requirements applied by state insurance supervisors. The only 

possible exception is that the Federal Reserve and the FDIC are authorized under their rules 

implementing the Collins Amendment to agree to impose a lower capital requirement on 

certain assets (e.g., non-guaranteed separate accounts) not generally found on a bank’s 

balance sheet. 

Finally, the Federal Reserve applies a supervisory college concept in its interactions with 

other involved functional regulators and other supervisors, including financial supervisors in 

countries other than the United States. 

In the EU, Solvency II Directive requirements regarding group supervision apply to all 

insurance groups (regardless of whether depository institutions or thrifts are members of the 

group). 

On 20 November 200218 the EU adopted the Financial Conglomerate Directive (so called 

FICOD). FICOD ensures that financial conglomerates are supervised on a group-wide basis 

and supplements the rules contained in the sectoral legislation on banking/investment and 

 

18 Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms 

in a financial conglomerate (FICOD). 
Page 45 of 130 Pages

insurance. The Directive follows the Joint Forum's principles on financial conglomerates of 

199919. 

The FICOD in particular includes requirements and techniques for assessing the capital 

adequacy of conglomerates, including detecting multiple gearing; facilitating the exchange of 

information among supervisors; coordination among supervisors; testing the fitness and 

propriety of managers, directors, and major shareholders of the conglomerate; and the prudent 

management and control of risk concentrations and intra-group transactions and exposures. 

The EU recently undertook a first review of FICOD (so called FICOD1) following the lessons 

learnt during the financial crisis of 2007-2009. FICOD120, which was adopted in November 

2011, amends the sector-specific directives in such a way that supervisors are now able to 

perform consolidated banking supervision and insurance group supervision at the level of the 

ultimate parent entity where that entity is a mixed financial holding company. In addition, 

FICOD1 revised the rules for the identification of conglomerates, introduced a transparency 

requirement for group's legal and operational structures, and requires the inclusion of 

alternative investment fund managers into the scope of supplementary supervision in the same 

way as asset management companies. 

FICOD1 requires the EC to deliver a review report before 31 December 2012 addressing in 

particular the scope of the Directive, the extension of its application to non-regulated entities, 

identification criteria of financial conglomerates owned by wider non-financial groups, 

systemically relevant financial conglomerates and mandatory stress testing. The review, 

which is currently in the process of being prepared by the EC, will be followed up by 

legislative proposals if deemed necessary.

 

19 The Joint Forum is the joint body of the international standard setters: Basel Committee for Banking Supervision (BCBS), 

the International Association of Insurance Supervisors (IAIS), and the International Organization of Securities Committees 

(IOSCO). 

20 Directive 2011/89/EU, amending Directives 98/78/EC (“IGD”), 2002/87/EC [FICOD], 2006/48/EC “CRD”) 

and 2009/138/EC (“Solvency II”) as regards the supplementary supervision of financial entities in a financial 

conglomerate.
Page 46 of 130

3. Solvency and Capital Requirements

Executive summary: 

The primary objective of both regulatory regimes is to protect the policyholders. For this 

purpose, the two regimes have two different approaches each of which must be considered 

from a holistic perspective. The respective regulatory frameworks are in some cases 

attributable to the different philosophical approaches and legal foundations of those regimes. 

Under the state-based regime’s risk-based capital (RBC) system in the U.S., the Company 

Action Level (CAL) sets a minimum amount of capital before corrective action is prompted. 

That amount of regulatory capital is likely to be lower than the EU Solvency Capital 

Requirement (SCR). The CAL RBC level (and the three other levels) for regulatory 

intervention is not calibrated to an overarching confidence level or time horizon (calibration 

of risk categories are also not derived from explicit target criteria). Under the EU Solvency II 

regime, the supervisory ladder of intervention is based on the SCR and the Minimum Capital 

Requirement (MCR) which are calibrated to 99.5% and 85% confidence levels respectively, 

using a value-at-risk measure of the Basic Own Funds derived from a total balance sheet 

approach. The Mandatory Control Level RBC is most likely lower than the Solvency II 

MCR21. 

The term “internal models” indicates a different meaning under the state-based regime in the 

U.S. than it does under Solvency II, and the scope of application of models is more limited 

under the RBC system in the U.S. than it is under Solvency II. Specifically, RBC limits the 

application of models in the U.S. to specific products and risk modules, using prescribed 

parameters and time horizons and the models are not subject to a prior approval by the 

supervisor, though they are subject to regulatory minimum/floor scenarios. Under Solvency 

II, as a way to more precisely reflect the risk profile of the regulated entity, internal models 

can be used for the calculation of the SCR for all or some of the risks. The use of internal 

models is subject to prior supervisory approval, ongoing monitoring and compliance with 

specific requirements including the integration of the model in risk management and decision 

making processes. 

Both regimes have a similar concept of the own risk and solvency assessment (ORSA), but 

the EU sets in law the process and prescribes that the qualitative and quantitative assessments 

are performed against a set standard. The EU also provides guidelines that are more 

prescriptive. In the U.S., more management discretion is allowed as to the use of 

methodologies, with disclosure and justification. 

The state-based Statutory Accounting Principles (SAP) regime in the U.S. and the valuation 

approach used in Solvency II deviate from the bases used for general purpose reporting in 

 

21 MCR floor (the middle of the corridor) corresponds to 70% ACL (35% RBC). Therefore if the amount of 

regulatory capital is likely to be lower in the US than the EU SCR, Mandatory Control Level is likely to be 

lower than MCR as well.
Page 47 of 130

those jurisdictions (respectively, U.S. GAAP and IFRS) in valuing certain assets and 

liabilities. SAP looks to establish more of a winding-up value based on the statutory accounts 

and the use of amortized cost methodologies, whereas the EU regime assesses a company on 

a going-concern basis based on a market consistent balance sheet. This difference is 

consistent with the SCR potentially being an earlier intervention point than the RBC CAL 

and explains why available capital is likely to be more subject to variation over time in 

response to changing market conditions under the European regime. 

Technical provisions are valued on a market-consistent basis under Solvency II. Technical 

provisions comprise the sum of the best estimate and a risk margin. The best estimate 

represents the probability weighted average of all future cash flows discounted using a risk 

free rate term structure. The risk margin represents the cost of capital to support the product 

until liabilities are fully run-off. The RBC regime by contrast uses a discount rate based on 

corporate bond yields for life insurance reserves and a best estimate (for which discounting is 

restricted to certain lines of business) for property & casualty insurance reserves. Whilst the 

US regime contains explicit or implicit reserve margins in different places, the EU regime has 

no such margins, but does contain the risk margin as defined above. It is to be highlighted 

that these two concepts are not directly comparable; their underlying purposes are different. 

The reserving bases are different and an assessment of the relative strength of the EU and 

U.S. bases will depend on the specific product under consideration. 

Under RBC requirements, capital is defined as statutory capital and surplus with prudential 

adjustments (including ones made for non-admitted and limited admissibility assets). In the 

EU, capital resources are generally equal to the net asset value of the firm plus subordinated 

liabilities (basic own funds) and ancillary own funds. Solvency II includes a three-tier 

classification of capital and provides specific provisions for the classification of hybrid and 

subordinated capital instruments. To the extent that instruments do not provide the best form 

of loss absorbency, they are restricted in counting towards covering capital requirements. 

Investment restrictions are consistent with the prudent person principle under Solvency II. In 

the state-based regime in the U.S., investment restrictions are based upon defined limits or a 

prudent person approach (or some combination) depending on the state. For RBC results, 

corrective actions are triggered when the capital resources of a company are less than the 

Company Action Level RBC, while, under Solvency II capital requirements, corrective 

actions are triggered when a company breaches its SCR. 

Topic 1: Policy Objectives 

Overall Policy Objectives 

The primary objective of both the state-based regulatory regime in the U.S. and the EU’s 

Solvency II is to protect policyholders. The protection of policyholders presupposes that 
Page 48 of 130

companies are subject to effective solvency requirements that result in the maintenance of 

adequate capital resources that cover all of the risks to which an insurer is or could be 

exposed. Accordingly, capital requirements are a key tool for accomplishing the objective of 

policyholder protection under both regimes. Financial stability and fair and stable markets are 

other objectives of insurance regulation and supervision that should also be taken into 

account but that should not undermine the main objective. 

Overall Policy Framework & Supervisory System

Under the state-based regime in the U.S., RBC requirements are a tool for legally authorized 

and defined company or regulatory action at specified levels. State regulators also have 

regulatory authority for Companies Deemed to be in Hazardous Financial Condition (NAIC 

Model 385) to impose tailored timely intervention (pursuant to other solvency tools) prior to 

an RBC action-level trigger. RBC sets out a minimum capital requirement and does not aim 

to be an evaluation of economic or target capital level. Therefore, it is not used to establish 

or compare well-capitalized companies. RBC requirements target material risks for each of 

the primary insurer types (life, property & casualty and health). 

In addition to RBC requirements and other financial tools used to implement corrective 

action, the overall state-based solvency framework in the U.S. also includes the following: 

restrictions on insurers’ activities to mitigate or eliminate some risks in the insurance 

business; prudential accounting filters which result in conservative surplus recognition and 

provide counter-cyclical effects22; and a back-stop of financial protection when insurer 

rehabilitation or liquidation is required via the State Guaranty Fund System. As such, RBC is 

calculated from valuations that are usually more conservative (e.g., non-admitted assets, 

deferred acquisition costs are expensed rather than capitalized) and less volatile (e.g., many 

fixed income instruments are valued at amortized cost) than valuations under financial 

accounting standards such as GAAP. Insurer risk management issues are addressed in 

multiple areas outside of RBC, most heavily in the on-site examination process (see TC 7)23

but also in reporting and analysis (see TC 5)24. As discussed further below, state regulators 

may also impose additional capital requirements (for example, for deficiencies in risk 

management and other areas) outside of the RBC calculation.

In the EU, Solvency II follows a “Total Balance Sheet Approach” where the determination of 

an insurer’s capital that is available and needed for solvency purposes is based upon a market 

 

22 One example of a counter-cyclical effect is the Asset Valuation Reserve, which life insurers set aside to offset 

future credit-related losses on investments. Another example is the valuation of investment assets on an 

amortized cost instead of a fair value basis. 23 In particular, examiners are required to gain an understanding of the corporate governance structure and to 

assess the undertaking’s risk management environment. Deficiencies and concerns are presented to 

management and progress on corrections is monitored with the potential for escalating regulatory intervention. 24 Reporting requirements address, among other issues, whether a company has a code of ethics for senior 

management, an Audit Committee per state laws, Board of Directors’ oversight of investment purchases and 

sales. Regulators follow up on the findings of exams and might assess whether the Board has an appropriate 

level of oversight and if any changes have occurred to the Board structure, committees, etc.
Page 49 of 130

consistent or economic valuation approach. Solvency II capital requirements target all 

quantifiable risks and are determined on the basis of the risk profile of the company and the 

management of those risks (e.g. the use of risk mitigations). Solvency II capital requirements 

therefore provide incentives for sound risk management practices and enhanced transparency 

(e.g., in the case of governance deficiencies, supervisors may impose capital add-on – see 

Capital add-on below). 

Key Commonalities:

• RBC in the state-based regulatory regime in the U.S., and Solvency II capital 

requirements in the EU, play a key role in meeting the goal of policyholder protection, 

which is central to both regimes.

• Both regimes provide thresholds for regulatory actions. 

• For both regimes, the capital requirements are supported by requirements on 

governance, supervisory review, reporting to supervisors. In addition, both rely on 

market discipline through public disclosure. 

Key differences:

• The Solvency II market-consistent balance sheet provides a going-concern view of an 

insurer’s solvency position, while RBC represents capital more on a winding-up basis, 

thereby influencing the part they play in the respective regimes.

• The SCR under Solvency II includes all quantifiable risks of the insurer while RBC 

includes risks considered material to the industry with some modules looking at 

company specific assumptions. 

• The Solvency II framework, including the SCR, is designed to provide incentives for 

risk management, whereas the RBC primarily relies on supervisory tools other than 

capital requirements to address risk management concerns. 

Topic 2: Assessment of Risk and Capital Adequacy 

Scope of regulatory capital calculation 

The RBC calculation under the state-based regime in the U.S. is mainly a standardized 

approach tied to annual statement data with increasing use of internally-generated company 

information for model approaches. RBC assesses risk by applying risk weights (called 

“factors”) within each risk module, although, certain lines of business and risks (e.g. interest 

rate risk) are assessed using models (see further discussion of models below in Topic 4). 

Each of the primary insurance types (life, property & casualty, and health) has a separate 

RBC formula, with each containing its own set of factors covering the material risks 

identified in each formula. The components of the life insurance formula include the 
Page 50 of 130

following: risk related to certain affiliated investments25; risk on other financial assets (e.g. 

risk of default, change in market value); insurance risk; interest rate, health credit risk, and 

market risk26; and general business risk. The components of the property & casualty 

insurance formula include: risk related to affiliated company investments; risk on fixed 

income assets; risk on equities; credit risk (related to reinsurance recoverables); underwriting 

risk (related to reserves); and underwriting risk (related to net written premium). The 

components of the health insurance RBC formula include the following: risk related to 

certain affiliated investments; risk on other financial assets; underwriting risk; credit risk27; 

and business risk. 

Asset concentrations are also assessed via risk charges to reflect the additional risk of high 

concentrations in single issuers. However, currency risk is not taken into account and 

catastrophe risk is not addressed directly and completely, although a catastrophe risk charge 

currently is being developed as part of Solvency Modernization Initiative28. A standard factor 

for operational risk is included in the Life RBC formula, but not in the P&C formula. 

The RBC formula includes a covariance calculation (that also varies depending on line of 

business) that is designed to measure correlation between risks. Investments in affiliated 

insurance companies are excluded from the covariance calculation based upon the 

assumption that diversification disappears when the entity experiences financial distress29. 

Four RBC action and control levels establish risk-based requirements that provide a baseline 

to more discretionary regulatory intervention resulting from analysis and examination 

oversight activities (see Topic 4 for additional discussion of the RBC action and control 

levels).

In the EU, the Solvency II framework sets out two different levels of capital requirements, an 

upper level, the SCR, and a lower bound, the MCR. 

 

25 An affiliate is defined as an entity that is within the holding company system or a party that, directly or 

indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the 

reporting entity. An affiliate includes a parent or subsidiary and may also include partnerships, joint ventures, 

and limited liability companies. An affiliate is any person that is directly or indirectly, owned or controlled by 

the same person or by the same group of persons, that, directly or indirectly, own or control the reporting entity. 

(Person in this context includes individuals as well as corporate structures.)

26 Market risk in this context covers risk of losses due to changes in market levels associated with variable 

products with guarantees.

27 Credit risk in this context refers to the risk that health benefits prepaid to providers become the obligation of 

the health insurer once again. 

28 The separate catastrophe risk charge is currently planned for the 2013 Property & Casualty RBC formula. The 

new parameters will apply immediately from the time the formula is updated, no further sign-off at State Level 

is required.

29 Excluding the capital charge on affiliated investments from the covariance calculation ensures that more 

capital is held for these affiliated investments (i.e. the RBC charge is not smoothed by the covariance 

calculation), which partially addresses the double gearing of capital.
Page 51 of 130

The SCR is designed to take into account all quantifiable risks to which a firm is exposed, to 

include at least the following: (life, non-life and health) underwriting risks; market risk; credit 

risk; operational risk. Each of these risks includes various sub-risks. For instance, market risk 

includes interest rate risk, equity risk, property risk, spread risk, currency risk, and market 

risk concentration. The SCR takes into account risk mitigation techniques (e.g. reinsurance) 

provided that credit risk and other risk arising from the risk mitigation are also reflected in

the SCR. The SCR is a risk-sensitive requirement used for timely supervisory intervention 

(to prompt corrective action by the company). 

Please refer to appendix A for more details on risks covered and approach adopted under 

RBC and Solvency II SCR standard formula calculation.

The MCR is designed to correspond to a minimum solvency level, below which 

policyholders and beneficiaries are exposed to an unacceptable level of risk, if the insurer 

were allowed to continue its operations. The MCR is a simple linear formula, calculated 

independently from the SCR calculation, comprising a set of risk factors applied to the 

individual company liabilities. The MCR must be within 25% and 45% of the SCR and is 

subject to absolute minimum amounts.

As an alternative to using the SCR standard formula, a company may, subject to regulatory 

approval, replace some parameters of the underwriting risks modules with some other 

parameters based on the company’s own data. In accordance with the risk-oriented approach 

to the SCR, companies can, subject to supervisory approval, use either partial or full internal 

models for the calculation of that requirement (this is reflected in a separate section). 

The framework is completed with the existence of dampeners, both quantitative (e.g. the 

symmetric adjustment mechanism for equity risk under the standard formula) and qualitative 

(e.g. provision for taking due care to avoid pro-cyclical effect when requiring plan to restore 

compliance with the SCR), that aim to address potential pro-cyclical effects of the regime. 

Calibration of regulatory capital 

There is no overall formula calibration under RBC. Instead, state regulators refine individual 

risk weights through analysis of historical data and probabilities using expert judgment. A

separate calibration process is applicable to partial models used to assess interest rate and 

other risks. In short, RBC factors were developed based on industry norms with some factors 

adjusted by company specific experience. Risk weights, partial model calibration, and any 

other formula change are accomplished via a transparent process incorporating input from 

insurance market representatives. 

Under Solvency II, the MCR uses a standardized approach based upon Value at Risk 

calibrated to an 85% confidence level over a 1-year time horizon; that calibration is floored 

and capped at 25% and 45% respectively of the undertaking’s Solvency Capital Requirement 

and is subject to an absolute floor, which depends on the nature of the undertaking, that the 
Page 52 of 130

MCR cannot go below30. The SCR is based upon Value at Risk calibrated to 99.5% 

confidence level over a 1-year horizon for all risk modules and for the overall formula. The 

outputs of the modules (and submodules) of the standard formula are calibrated to the 99.5% 

Value at Risk over a 1-year horizon and then aggregated using a prescribed 

variance/covariance matrix based upon fixed correlation factors between risk modules. This 

has been calibrated using a combination of data and regulatory judgment. The calibration was 

developed through a transparent process involving insurance market representatives via 

public consultations and was tested through quantitative impact studies. 

Frequency of calculation of the regulatory capital 

RBC is an annual filing to the NAIC. However, supervisors may require more frequent 

filings directly to the state for undertakings of concern (typically quarterly). 

Under Solvency II, a company is required to calculate the SCR at least once a year, but may 

be required to do so more frequently if the risk profile of the firm deviates (or there is 

evidence to suggest that it has deviated) significantly from the assumptions underlying the 

last reported SCR. The frequency of calculation of the MCR is at least quarterly.

Capital Add-on to regulatory capital 

Under Solvency II, supervisors have the power to impose a capital add-on to the SCR 

following the supervisory review process. Capital add-ons may be imposed where the risk 

profile of the firm deviates significantly from the assumptions underlying the SCR as 

calculated using the standardised approach or the internal model in order to restore the firm to 

the 99.5% confidence level, using a value-at-risk measure. Capital add-ons may also be 

imposed where there are significant governance deficiencies. In the event the standardised 

approach does not adequately reflect the specific risk profile of an undertaking supervisor 

may require the development of an internal model31. In the event of significant deficiencies in 

the full or partial internal model or significant governance failures the supervisors ensure that 

the insurer makes every effort to remedy the deficiencies that led to the imposition of the 

capital add-on. The capital add-on should be retained for as long as the circumstances under 

which it was imposed are not remedied. 

 

30 The Minimum Capital Requirement has an absolute floor of: 

• EUR 2,200,000 for non-life undertakings, including captive insurance undertakings except in the case 

where all or some of the risks included in one of the classes 10 to 15 are covered, in which case it shall 

be no less than EUR 3,000,000

• EUR 3,200,000 for life insurance undertakings, including captive insurance undertakings; 

• EUR 3,200,000 for reinsurance undertakings, except in the case of captive reinsurance undertakings, in 

which case the MCR shall be no less that EUR 1,000,000 31 Under Solvency II standard formula is not calibrated to industry average; it is calibrated to value at risk with 

confidence level 99.5% and 1 year time horizon. Therefore if the insurer uses internal model (after supervisory 

approval) to calculate the capital requirements, it will not affect calibration of standard formula. 
Page 53 of 130

Under the Hazardous Financial Condition model regulation, state insurance regulators in the 

U.S. have the discretion to impose additional capital requirements when one or any 

combination of twenty listed standards is breached. The additional capital is not an increase 

to the RBC calculation. Instead, it is an increase to the level of capital the insurer is actually 

holding and therefore becomes an effective minimum capital requirement. Furthermore, state 

regulators are in the process of adding trend tests (described below under Topic 3) for 

Property and Casualty RBC and for health RBC. A trend test for Life RBC has existed since 

the inception of the formula. Triggering the trend test can result in the regulator asking the 

insurer to hold more capital32. Disclosure of trend test results is not foreseen at this stage. 

See TC2 report for a description of group capital requirements.

Own Risk Solvency Assessment (ORSA) and economic capital 

The states, through the NAIC, are in the process of implementing an ORSA standard. 

According to the Risk Management and Own Risk and Solvency Assessment Model Act that 

is currently being adopted, the ORSA summary report shall be prepared consistent with the 

ORSA Guidance Manual. Section 3 of the NAIC ORSA Manual refers to Group Risk Capital 

and Prospective Solvency Assessment and sets the goal of the assessment to provide an 

overall determination of group risk capital needs for the insurer, based upon the nature, scale 

and complexity of risk within the group and its risk appetite, and to compare that risk capital 

to available capital to assess capital adequacy. According to the interpretation of NAIC 

experts also, a legal entity that does not belong to a group is not exempted from having to

complete section 3. In the EU, ORSA is Solvency II directive requirement. Under both 

regimes, ORSA will encompass the processes and procedures used to identify, assess, 

monitor, manage and report the short and long term risks a (re)insurance company faces or 

may face and to determine the capital adequacy (including a prospective solvency 

assessment) from the company-own perspective. Both regimes have an ORSA requirement 

that is similar in concept, but the EU sets by Directive the process and prescribes the

qualitative and quantitative assessments that have to performed, and provides guidance that 

are more prescriptive, whereas in the U.S., more management discretion is allowed as to the 

use of methodologies, with disclosure and justification. 

In the EU, the ORSA is an integral part of the risk management and shall be taken into 

account on an on-going basis in the strategic decisions of the insurer. According to Art. 45, 

the ORSA will need to cover at least: the overall solvency needs taking into account the 

specific risk profile, approved risk tolerance limits and the business strategy of the 

undertaking, the compliance, on a continuous basis, with the capital requirements, and with 

the requirements regarding technical provisions, as well as the significance with which the 

risk profile of the undertaking concerned deviates from the assumptions underlying the SCR, 

calculated with the standard formula or with its partial or full internal model. The ORSA will 

 

32 Solvency ratio of the insurer will not change.
Page 54 of 130

essentially provide that all companies, regardless of the solvency calculations required by 

supervisory regulations, are required to determine their actual risk profile realistically based 

on economic criteria and to control the same and integrate it into their risk management 

processes. 

Under the state-based regime in the U.S., the ORSA is one element of an insurer’s broader 

Enterprise Risk Management (ERM) framework33. The ORSA requirement includes an 

exemption for insurers with annual premium revenue less than $500 million but this is subject 

to commissioner discretion. The NAIC’s ORSA Guidance Manual requires an internal 

assessment of the risk associated with the insurer’s current and projected future business plan 

and an assessment of the sufficiency of capital resources to support those risks in both the 

current and stressed environments. As specified in the ORSA Guidance Manual, the ORSA 

Summary Report should discuss, at a minimum, the three major areas of: 1) a description of 

the insurer’s risk management framework (including at a minimum the risk culture and 

governance; the process for risk identification and prioritization; the risk appetite, tolerances 

and limits; the description of risk management and controls; and risk reporting and 

communication); 2) the insurer’s assessment of risk exposure (quantitative and qualitative 

assessments of risk exposure in both normal and stressed environments for each material risk 

category); and 3) the group risk capital and prospective solvency assessment (documenting 

how the company combines the qualitative elements of its risk management policy and the 

quantitative measures of risk exposure (in both normal and stressed environments) in 

determining the level of financial resources it needs to manage its current business and over a 

longer term business cycle such as the next 2-5 years).

For group ORSA requirements, see the TC2 report. 

Although economic capital targeted by insurers for commercial purposes is higher than the 

regulatory capital requirements in both regimes, SCR generally yields a regulatory capital 

requirement that is closer to such economic capital than RBC for companies targeting the 

same credit rating.

Key Commonalities: 

• Both regimes calculate risk-based capital requirements based on a company’s own 

risk profile. However, the risk factors included in RBC are established to cover risks 

that are material for the industry, while the SCR of the Solvency II regime should 

cover all quantifiable risks to which a company is exposed. 

• Both regimes have an ORSA requirement that is similar in concept.

 

33The inclusion of ORSA into the state-based regime of solvency regulation is set forth in the SMI Action Plan. 

Pursuant to that plan, the ORSA Guidance Manual has already been completed and adopted by the NAIC. The 

Risk Management and Own Risk and Solvency Assessment Model Act was adopted by the full NAIC 

membership on Sept. 12, 2012 and will be implemented on January 1, 2015. The model references the ORSA 

Guidance Manual and establishes the requirement to provide information that meets the minimum coverage and 

components prescribed in the manual. Individual states will begin adopting the model into their statutes in 2013.
Page 55 of 130

• Both allow some modification of the standard formula calculations for companyspecific experience (using undertaking-specific parameters under Solvency II or 

weighted company-own factors under RBC). 

• Both regimes allow regulators the discretion to impose capital add-ons. The statebased regime in the U.S. allows use of capital add-ons in specific situations deemed 

hazardous to the undertaking’s financial condition. The insurer is required to hold the 

additional capital, and this becomes the firm’s minimum regulatory capital. 

Triggering the RBC trend test can also result in regulator asking an insurer to hold 

more capital. Solvency II demands an explicit increase to the insurer’s regulatory 

capital, through the use of capital add-ons where there are significant governance 

failures or where the risk profile of the firm is significantly different from the 

assumptions underlying the SCR calculation. The capital add-on is imposed in order 

to restore the regulatory capital to a 99.5% confidence level.

Key differences:

• Solvency II provides for a risk-sensitive capital requirement (SCR) that is based upon 

a prospective calculation of capital charges calibrated to an overall value at risk with a 

confidence level of 99.5%. RBC is not based on an overarching calibration target, 

although it does provides for specific calibration at individual risk level. 

• RBC capital requirements cover a specified list of factors that focus on the most 

material risks at the industry level and that are differentiated by type of insurer (life, 

P/C, health). The SCR is required to take into account all quantifiable risks for a firm 

The MCR is a linear formula based on a set of risk factors applied to individual 

company liabilities, and is much simpler than either the SCR or RBC.

• While an ORSA will exist in both regimes, the primary difference is that in the EU 

ORSA is a more prescriptive legal requirement linking risk management and capital 

management (including assessment of the significance with which the risk profile of 

the undertaking deviates from the assumptions underlying the SCR), whereas under 

RBC it is a legal requirement tied to analysis and regulatory oversight with more 

discretion initially left to management to determine (and justify) the specific risk 

assumption and mitigation methodologies chosen. 

• Under Solvency II, supervisors may impose an additional capital add-on to increase 

the SCR to the calibration target and the resulting SCR will be disclosed. Under RBC, 

the regulators may require a company to hold a higher level of capital if the trend test 

is triggered. Additional capital outside than the RBC calculation may be required, but 

that does not constitute an increase to the RBC calculation. 

• Currently, currency risk and catastrophe risk are excluded from RBC, although there 

are plans to include catastrophe risk as part of SMI; it is planned that the 2013 

formula will capture this. A standard factor for operational risk is included in the Life 

RBC formula, but not in the P&C formula. Since the overwhelming majority of 

business written by US domiciled insurers is in US currency, currency risk is not 

currently a material risk for the industry and thus is not incorporated into the RBC 
Page 56 of 130

formulas. It is noted though, that bilateral EU–US recognition may result in an 

increase of EU–US cross-border business. For a particular undertaking that has a 

material amount of currency risk, this would be disclosed as part of the required 

statutory financial statement and monitored by the supervisor in the analysis and 

examination processes.

 

Topic 3: The Role of Capital 

Levels of Regulatory Intervention 

Under the state-based regime in the U.S., the RBC calculation is a standardized approach to 

measuring a minimum amount of capital for an individual company by applying factors to the

individual company’s risk profile. A single RBC calculation is used to establish different 

levels of action points and authorizes a specific and escalating ladder of regulatory actions for 

poorly capitalized companies. Specifically, the RBC formula generates a required level of 

capital and surplus unique to each company based on the specific risk profile of each 

company. From this formula, the RBC generates the Authorized Control Level (ACL) 

RBC34, which is used to generate the three other action and control levels. Total Adjusted 

Capital (TAC) for a company is calculated based upon adjustments to the company’s actual 

capital and surplus. The ratio of an insurer’s TAC divided by its ACL RBC is compared to 

the four action and control levels. States are currently in the process of implementing trend 

test which is calculated at the level above the CAL RBC, using a 200% - 300% of ACL RBC 

range, but incorporating other requirements that differ by insurer type. Triggering of the trend 

test requires the insurer to respond as if the Company Action Level RBC was triggered.35

Under Solvency II in the EU, two independently calculated capital levels are established to 

allow for an effective supervisory ladder of intervention: 

• SCR, establishes a uniform level of safety for all insurers, the breach of which triggers 

supervisory intervention to prompt corrective actions approved by the supervisor (e.g. derisking, raising new capital). 

 

34 Authorized Control Level (ACL) RBC is used to calculate the other levels: CAL RBC = 2 x ACL RBC; 

Regulatory Action Level RBC = 1.5 x ACL RBC; ACL RBC = ACL RBC; and Mandatory Control Level RBC 

= .7 x ACL RBC.

35 These trend tests are already incorporated into the RBC formula calculations and States can use the data in 

analysis. However, the states are in the process of adopting the trend test changes to the RBC Model Law 

(adding a trend test for P&C and modifying the trigger from 250% to 300% for Life). Thus, the legal authority to 

require a company to submit the RBC Action Plan based on the new trend test will not exist until the state 

adopts the amended RBC Model Law. For Accreditation purposes, all states must have adopted the 

property/casualty trend test for the 2012 RBC calculations that will be filed in 2013, whereas the life trend test 

adoption requirement will be 2015 or 2016 (final decision yet to be made).
Page 57 of 130

• MCR, establishes a minimum level of capital, the breach of which requires supervisory 

actions, which may include withdrawal of insurance license.

Types of intervention

RBC -

Action Level

RBC - Level of regulatory 

intervention 

Solvency II Solvency II – Supervisory action

CAL 

TAC 

between 

150% and 

200% of 

ACL

CAL requires the company to 

prepare and submit an RBC 

Plan to the commissioner of 

the state of domicile. After 

review, the commissioner will 

notify the company if the plan 

is satisfactory.

SCR The company shall inform the 

supervisor of any non-compliance 

or risk of non-compliance in the 

next 3 months. 

Within 2 months from noncompliance the company shall 

submit a recovery plan for 

approval by supervisor. 

The supervisor shall require within 

6 months from non-compliance to 

restore compliance (period can be 

extended by 3 months). 

In exceptional circumstances, the 

supervisor may restrict or prohibit 

the free disposition of assets. 

Tier 1 capital items (e.g. ordinary 

share capital) must start absorbing 

losses. It is envisaged that, unless 

exceptionally permitted by the 

supervisory authority: repayment 

or redemption of Tier 1, Tier 2 and 

Tier 3 capital items must be 

suspended; distributions relating to 

Tier 1 capital items must be 

cancelled; and distributions 

relating to Tier 2 capital items 

must be deferred.

RAL 

(Regulatory 

Action 

Level):

TAC 

between 

100% and 

150% of 

ACL

RAL requires the insurer to 

submit to the commissioner of 

the state of domicile an RBC 

Plan, or if applicable, a 

Revised RBC Plan. After 

examination or analysis, the 

commissioner will issue an 

order specifying corrective 

actions (Corrective Order) to 

be taken.

ACL 

(Authorized 

Control 

Level): 

TAC 

between 70% 

and 100% of 

ACL

In addition to the above, ACL 

authorizes the commissioner of 

the state of domicile to take 

whatever regulatory actions 

(may include rehabilitation or 

liquidation) are considered 

necessary to protect the best 

interest of the policyholders 

and creditors of the insurer. 

MCR (the 

MCR can be 

associated 

with both 

ACL and 

MCL; the 

RBC system 

includes 

more phases 

in this 

The company shall inform the 

supervisor of any non-compliance 

or risk of non-compliance in the 

next 3 months. 

Within 1 month from noncompliance the company shall 

submit for approval by supervisor 

a finance scheme to restore 

compliance within 3 months. 

MCL MCL requires the The supervisor may restrict or 
Page 58 of 130

(Mandatory 

Control 

Level):

 TAC < 70% 

ACL

commissioner of the state of

domicile to take actions 

necessary to place the 

company under regulatory 

control (i.e., rehabilitation or 

liquidation). 

concept) prohibit the free disposition of 

assets.

It is envisaged that distributions 

relating to Tier 3 capital items 

must be deferred. 

Key Commonalities: 

• Both regimes require plans of action within a specified time-frame and extensive 

regulatory interaction. Both have a supervisory ladder of intervention based on RBC 

ratios, SCR or MCR.

Key Differences:

• The RBC calculation is a standardized approach to measuring a minimum amount of 

capital used to calculate different levels of action points; it is not an indicator of 

financial strength. Solvency II includes two independently calculated capital levels 

(MCR and SCR) that allow different types of regulatory actions. 

Topic 4: Approaches to Internal Models

The state-based RBC regime in the U.S. limits modeling to specific products and risk 

modules within an otherwise standardized approach. Partial models are limited currently to 

specific life and annuity products with guarantees that are subject to interest rate or market 

fluctuation risks. While these partial models are not subject to regulatory approval, 

regulators generally set or specify sources for companies to use prescribed statistical 

parameters and time horizons for the partial models and may apply a standard model that acts 

as a floor on capital. Documentation supporting modeling and decisions is also required at 

least annually and reviewed in the supervisor’s oversight activities. 

Under Solvency II in the EU, while an insurer must use a standardized approach in 

determining its MCR, it can choose between the standard approach or the use of an internal 

model for either specific risk modules (i.e. partial internal model) or for all its risks when 

determining its SCR. Internal models are considered as an approach to more precisely reflect 

the risk profile and as such serve as a valuable risk management tool. An insurer, however, 

must receive prior approval from its supervisor to be able to use an internal model. The initial 

approval of the application to use an internal model is subject to specific tests and standards 

covering the following: use tests; statistical quality standards; calibration (99.5% Value at 

Risk over 1 year); documentation; profit and loss attribution; and validation. Internal models 

are also subject to requirements regarding change governance and ongoing monitoring of its 

performance. Internal model approval can be granted only if the supervisors are satisfied that 
Page 59 of 130

the company has an effective risk management system to identify, measure, monitor, manage 

and report risk, and the internal models are required to be embedded in an insurer’s decision 

making process and risk management. Post-approval supervision is focused on assessing the 

ongoing compliance with tests and standards and appropriateness of the internal model to 

reflect the risk profile. In addition, where the standard formula does not reflect appropriately 

its risk profile, the company may be required to develop an internal model for all or part of its 

risks.

The requirement for the model to be internal (i.e. embedded in the internal processes of the 

firm) is very important to the framework in order to create incentives to improve the quality 

of the internal model. 

Key differences:

• Solvency II provides the options for a firm to model some or all of its risks in order to 

more precisely reflect its risk profile. RBC limits modeling to specific products and 

risk modules within an otherwise standardized approach. 

• Under Solvency II, prior approval of models by supervisors is required. The SCR 

calculation using an internal model must be calibrated to the same confidence level as 

the standard formula. Approval to use an internal model is subject to the company 

demonstrating compliance with tests and standards and appropriateness of models 

chosen. Models used within RBC do not require prior approval but generally are 

subject to prescribed parameters or limits set by supervisors. 

• Under solvency II when using an approved internal model insurers are required to 

monitor the ongoing appropriateness of the internal model and its compliance with the 

tests and standards. Supervisory review process is required to evaluate this ongoing 

compliance. 

Topic 5: Valuation 

Under the state-based regime in the U.S., regulatory reporting is based upon Statutory 

Accounting Principles (SAP). While SAP is based on U.S. GAAP, SAP rejects or modifies 

GAAP in certain areas. Therefore, SAP financial statements are not fully consistent with 

GAAP financial statements. SAP financial statements are generally viewed as more 

conservative than GAAP financial statements. Whereas GAAP values assets and liabilities on 

a “going-concern” basis, SAP considers what assets would be available to pay claims akin to 

the company winding down as of the reporting date. Under SAP, certain assets that are 

illiquid and which are not readily available to pay claims are not admitted, have limited 

admissibility, or require immediate expensing to operations (e.g. deferred acquisition costs). 

Given that, SAP generally has less potential balance sheet variation than GAAP from year to 
Page 60 of 130

year.

36 Instead of defaulting to fair or market values for financial assets (most notably debt 

investments), this regime bases investment valuation and RBC requirements on NAIC quality 

designations (1-6) that can result in different reporting (amortized value vs. market value for 

lower quality designations), with common stock reported at market value. Another example is 

that SAP requires all leases to be accounted for as operating leases and not capitalized (i.e. 

the lease is not recognized as an asset on the balance sheet). 

In the EU, the solvency assessment of a company is based on an economic balance sheet. 

This provides an economic, risk-based view of the actual solvency condition of a firm at a 

given point in time. Assets and liabilities other than technical provisions are valued at fair 

value in conformity with IFRS, notwithstanding some prudential exemptions (e.g. goodwill) 

and specific conditions (e.g. intangible assets). Thus, the balance sheet used for solvency 

purpose in the E.U. is not fully consistent with IFRS financial statements. Given its use of 

market-consistent valuation, regulatory reporting in the EU is subject to greater potential 

balance sheet variation from year to year than is SAP, which is akin to a winding-up 

approach. 

Key Commonalities:

• Both regimes consider the interaction between the valuation and the capital 

requirement.

• Both deviate from the accounting treatment in relation to the following: 

o Deferred Tax Asset treatment (under SAP, there are limits on admissibility, 

whereas in the EU an adjustment to available capital (own funds) is made for 

any net DTA);

o Certain intangible assets are not allowed to be recognized as assets under 

RBC and are valued at zero under Solvency II; and 

o Deferred Acquisition Costs (DAC) are not allowed to be recognized as assets.

Key Differences:

• SAP considers what assets would be available to pay claims akin to the company 

winding down as of the reporting date; Solvency II constructs a market-consistent 

balance sheet, providing a going-concern view of an insurer’s solvency position. 

• Under the state-based regime in the U.S., the investment valuation and RBC 

requirements are tied to NAIC quality designations (1-6) and underlying 

characteristics. Investment valuation under Solvency II is based on fair/economic 

value, which implicitly reflects the quality designation;

 

36 Life insurers in the U.S., for example, are required to have an asset valuation reserve (AVR) that provides 

conservatism and counter-cyclicality by setting up a reserve for market value fluctuations where assets are 

valued at amortized cost. 
Page 61 of 130

• Some expected profit in future premiums are allowed, to the extent that future 

premiums on written contracts reduce technical provisions, under Solvency II, but not 

under RBC; 

• Goodwill is allowed to be recognized under SAP as an asset up to an aggregate limit 

of 10% of the insurer’s adjusted capital and surplus (reduced for goodwill, electronic 

data processing equipment and operating software, and net DTAs); Solvency II does 

not allow recognition of any goodwill.

Topic 6: Calculation of Technical Provisions 

Under the state-based regime in the U.S., different approaches are taken with respect to the 

calculation of reserves for life insurance and for property & casualty insurance. 

The calculation of reserves for life insurance policies generally is based on a formula 

prescribed in the Standard Valuation Law. That formula utilizes valuation mortality tables 

and valuation interest rates (a single discount rate based on a weighted average formula using 

Moody’s corporate bond yields for each calendar year of issue). State law requires the 

formula reserves to be tested for adequacy in aggregate through the use of an asset adequacy 

analysis to be performed annually by each company. For variable annuity products with 

guaranteed death and living benefit guarantees, the use of modeling is allowed with 

prescribed regulatory minimum floor reserves. Through the anticipated application of 

principles-based reserving, there will be increased use of modeling for life insurance products 

with guarantees. 

The calculation of reserves for property & casualty insurance policies is determined by the 

best estimate of ultimate losses and related expenses, with that best estimate based on 

historical data within actuarial range. Current inflation trends and economic factors are 

considered in the calculation, while discounting is restricted to defined lines of business and 

is subject to commissioner approval. 

Under the EU’s Solvency II, reserves are determined on a fair value/market consistent basis. 

Technical provisions comprise the sum of the best estimate and risk margin; where the best 

estimate represents the probability weighted average of all future cash-flows discounted using 

a risk free rate term structure. A risk margin – calculated on the assumption that the whole 

portfolio of insurance obligations of the company is taken over by another company – is 

added to the best estimate. The best estimate covers expected losses and the risk margin is 

the cost of capital to support product until liabilities are fully run-off.

For life insurance reserves, the valuation discount rate is set annually in the state-based 

regime in the U.S. based on weights applied to the Moody’s seasoned corporate bond yields. 

The US regime uses a prescribed mortality table constructed from industry experience with 

explicit margins added for adverse deviations. Such reserves are subjected to an annual asset 
Page 62 of 130

adequacy test analysis to verify the adequacy of reserves through different stochastic and 

deterministic economic environments. Property and casualty reserves are a best estimate 

reserve (for which discounting is restricted to certain lines of business). The discount rate 

used within the EU reserving basis is lower than that used within the U.S. basis. The 

inclusion of the risk margin is a specific concept under the EU regime and represents an 

addition to the technical provisions. Both of these aspects would increase the level of reserve 

strength under the EU basis relative to that under the U.S. basis, all other aspects being equal. 

By contrast within the U.S. basis the formula reserve uses a prescribed valuation mortality 

table that contains a prudent margin and therefore is not a best estimate assumption. The 

formula reserve assumes no lapses and is based on one of several net premium patterns37. 

These aspects would increase the level of reserve strength in the U.S. basis relative to that 

observed in the EU basis, all other aspects being equal. To assess the precise combined 

effects of the factors noted above, one would need to consider the impact on specific products 

separately. Once Principle Based Reserving (PBR)38 is fully operational in the U.S., 

mortality, lapse and expense assumptions would move closer to a best estimate basis plus a 

margin; it is expected that at this point the U.S. and EU bases will be more similar. It is 

important to note however, since PBR only applies to new business, it will only be some time 

after implementation that the new basis will become predominant within the reserving 

position for those firms writing substantial amounts of long term business. 

For non-life insurance, the EU reserving basis requires discounting, contrasted with the U.S. 

reserving basis where discounting is restricted to a few lines of business and is subject to 

commissioner approval. The effect of discounting would reduce the technical provisions but 

this is offset by the inclusion of the risk margin in the EU basis. At a first order the net effect 

of these two aspects broadly offset each other with no significant change in technical 

provisions expected. The precise impact and hence an assessment of the relative strength of 

the EU and U.S. reserving bases will depend on the specific product under consideration and 

is a function of the time to run-off of liabilities, the amount of capital required to support the 

product during run-off and the risk free term structure at the point of valuation. 

Key Commonalities: 

• Both regimes segregate the technical provisions (i.e. reserves) from other liabilities.

 

37 1. Based on the interest and mortality of the reserve

2. Level percentage of the guaranteed gross premiums or 

3. Other patterns

• Net level premium reserves (NLP)

• Commissioners Reserve Valuation Method (CRVM) - This method modifies the first year net premium and has the 

reserve lower the first year as just a mortality amount then they increase the net premium % in subsequent years 

this is because of the high first year commission costs. 

• CRVM graded to NLP - This is a blended rate that uses CRVM in the first years and grades to a net level premium 

method. 38 PBR will take several years before it becomes effective. Once effective, it only applies to prospective business.
Page 63 of 130

• Both regimes rely on an overlay of a supervisory framework to some degree. Both 

regimes allow regulators to demand a different level of reserve.

Key Differences:

• The reserving bases are different and an assessment of the relative strength of the EU 

and U.S. bases will depend on the specific product under consideration. 

o For life insurance, the EU basis contains a lower discount rate than the U.S. 

basis and includes a risk margin. Both of these aspects would increase the 

level of technical provisions under the EU basis, all other aspects being equal. 

By contrast, in the basis used in the state-based regime in the U.S., the formula 

reserve assumes no lapses and is based on one of several net premium 

patterns. This aspect would increase the level of technical provisions relative 

to the EU basis. 

o For non-life insurance, the EU basis allows discounting, the U.S. basis only 

allows discounting for certain limited lines and is subject to commissioner 

approval. At a first order the inclusion of the risk margin in the EU basis 

broadly offsets the impact of discounting, the precise impact will depend on 

the specific product and risk free term structure present at the time of 

valuation. 

Topic 7: Definition of Capital/Requirements for Capital Resources 

Under the state-based regime in the U.S., TAC is generally equal to the book value of surplus 

funds (i.e. statutory capital and surplus)39 with applicable adjustments depending on type of 

insurance company.40 As noted in the prior discussion on valuation, adjustments are made 

for non-admitted and limited admissibility assets, as well as expensing rather than 

capitalizing and amortizing of certain deferred assets (e.g. deferred acquisition costs) under 

SAP. During the wind-up of an insurance company, there is a legal basis for priority of 

distributions. 

Solvency II in the EU has a total balance sheet approach that requires a consistent valuation 

of assets and liabilities for solvency purposes in accordance with the “fair value” principle. In 

accordance with that approach, Basic Own Funds (i.e. capital) are mainly comprised of the 

net asset value, with some allowance for hybrid and subordinated capital instruments. In 

addition to the Basic Own Funds, ancillary own funds (e.g. unpaid capital, guarantees, other 

 

39 In the state-based regime in the U.S., SAP (specifically, SSAP 72), defines categories of statutory surplus. Surplus notes – 

subordinated debt-like instrument issued by insurance companies – are classified as capital and surplus under SAP and 

liabilities under GAAP. 40 For example, for life insurance companies, TAC is roughly equal to statutory capital and surplus plus the AVR plus 50% 

of policyholder dividend liability. 
Page 64 of 130

legally binding commitments) can also be taken into account to absorb losses subject to prior 

supervisory approval. Capital is classified based on loss absorbency on both a going-concern 

and wind-up basis under a three-tier system (Tier 1 is the most loss-absorbent and Tier 3 is 

the least). Solvency II sets floors or caps on the use of certain capital instruments in meeting 

capital requirements (e.g. limits on the amount of hybrid and subordinated capital instruments 

that qualifies as Tier 1 capital). It also makes specific deductions from available capital.41

Hybrid and subordinated capital instruments may be converted or written down under 

specified circumstances. 

Key Commonalities: 

• For the majority of institutions (joint stock companies), capital will consist primarily 

of ordinary share capital, share premium and retained earnings attributable to 

shareholders. 

• Both regimes have methodologies for recognizing the capital resources of mutual 

organizations.

Key Differences:

• Solvency II includes a three-tier classification of capital and provides specific 

treatment for hybrid and subordinated capital instruments. To the extent that 

instruments do not provide the best form of loss absorbency, they are restricted in 

counting towards covering capital requirements. RBC is based on accounting 

principles (SSAP 72) that define categories of statutory surplus. 

• Under Solvency II, capital items must have explicit features related to the capital 

requirements in order to count as available capital (e.g. capital items must be free 

from mandatory fixed charges and can only contain limited incentives to redeem). 

RBC does not tie such features directly to the capital item.

Topic 8: Restrictions for Investments

Under the state-based regime in the U.S., a state must adopt an investment law in order to be 

accredited. There are two basic models: a defined limits version and a defined standards 

version (prudent person approach). Each state must adopt a substantially similar version of 

one of these (or some combination of the two). As such, there can be some variation in the 

application of these investment laws from state to state. Both models include requirements for 

a written investment policy and board oversight and internal control activities related to 

investments. For various life insurance products, specific asset and liability matching, asset 

adequacy analysis and cash flow scenario testing activities are required. 

 

41 Items that might be fully or partially deducted from capital under certain circumstances include the following: ring-fenced 

funds (where capital or assets are set aside to only absorb losses for particular parts of a business); large holdings in financial 

and credit institutions; and net deferred tax assets.
Page 65 of 130

With respect to the use of derivatives, some states restrict derivatives use to hedging only. 

Written hedges are required to be covered42, where the insurer holds the underlying 

instrument. Derivatives use plans are considered when performing oversight activity. The 

RBC regime allows credit for direct hedges only but does not exempt any hedging derivatives 

from charges in the capital requirement calculation. Custodial arrangement and disclosure 

requirements exist to ensure the availability of the assets.

The EU’s Solvency II’s investment restrictions are consistent with the prudent person 

principle. Although the Solvency II approach does not include quantitative investment limits 

and asset eligibility criteria, the company’s investment policy is expected to implement the 

prudent person principle and companies are expected to properly diversify assets to avoid 

excessive reliance on specific type of asset, counterparty, geographical area and industry43. 

At the same time, the company must consider the risks included in complex products. 

Solvency II has the explicit requirement that assets that cover technical provisions be 

invested in a manner appropriate to the nature and duration of the insurance and reinsurance 

liabilities; those assets must be invested in the best interest of policy holders and beneficiaries 

in a manner consistent with the disclosed policy objectives on the related insurance products. 

 

Solvency II allows insurers to use derivatives only insofar as they contribute to a reduction of 

risks or facilitate efficient portfolio management. Derivatives will be exempted from a capital 

charge under the “spread risk” sub-module only to the extent that the derivatives are part of 

the company’s risk-mitigation strategy and hedge an underlying instrument held by the 

company (with non-material basis risk on the hedge). 

Key Commonalities: 

• Both regimes have requirements with regard to investments that aim to ensure that 

investment portfolios are established and managed prudently. However, the two 

regimes achieve this objective in very different ways.

Key Differences:

• Under Solvency II, undertakings are required to invest assets consistent with prudent 

person principle and in a manner as to ensure the security, quality, liquidity and 

profitability of the portfolio as a whole. State laws in the U.S. limit activities and/or 

require a prudent person approach to address these investment considerations. 

• In the EU, assets covering the technical provisions must be invested in a manner 

appropriate to the nature and duration of the insurance and reinsurance liabilities. 

Under the state-based regime in the U.S., life insurers are subject to asset and liability 

matching requirements to achieve this investment consideration. 

 

42 A requirement set forth by the NAIC Accounting Practices & Procedures Manual. 43 To a certain extent, diversification coefficients in market risk modules are also an incentive to diversifying assets.
Page 66 of 130

• In the EU, those assets must be invested in the best interest of all policy holders and 

beneficiaries taking into account any disclosed policy objective. In addition, the 

location of those assets shall be such as to ensure their availability. The state-based 

regime in the U.S. has custodial arrangement and disclosure requirements to ensure 

the availability of the assets.

• Under RBC, the NAIC Accounting Practices and Procedures Manual identifies those 

assets defined as admitted and those defined as non-admitted. If an asset is not 

defined in the Manual, it defaults to non-admitted status. With some state specific 

variations, states generally rely more on restrictions and limitations. RBC credit is 

granted for direct hedges only, with hedge accounting looking at the underlying value 

of the hedged investment. Under the Solvency II regime, insurance and reinsurance 

undertakings shall only invest (under a prudent person principle) in assets and 

instruments whose risks the undertaking concerned can properly identify, measure, 

monitor, manage, control and report, and appropriately take into account in the 

assessment of its overall solvency needs. The RBC regime sets limits on assets and, in 

some states, a prudent person principle applies. 
Page 67 of 130

Appendix A – comparison RBC and Solvency II standard formula by risk

Non-life risks RBC Solvency II standard formula

Market risk (the market risk module is identical for life and non-life)

Interest rate

Methodology Not applicable

Scenario based approach-based on the higher of the loss 

of the basic own funds, given two pre-determined 

upwards and downward shocks to the term structure of 

interest rates.

Equity

Methodology

The factor for other unaffiliated common stock is based on 

studies that indicate a 10%-12% factor is needed to provide 

capital to cover approx. 95% of the greatest losses in common 

stock value over 1-year horizon. A higher factor of 15% in the 

formula reflects regulatory judgement applied to recognize the 

increased risk when testing a period in excess of one year. 

A risk factor of 22.5% is applied to the carrying value of 

investments in affiliates (other than insurers and investment 

companies).

A downward shock (which varies by type of equity) is 

applied. For Type 1 equities (i.e. equities listed in EEA or 

OECD), the charge is sum of 39% and a symmetric 

adjustment to cover the risk arising from changes in the 

level of equity prices. For Type 2 equities (i.e. unlisted or 

listed in non-EEA/non-OECD countries, private equities, 

hedge funds, commodities and other alternative 

investments), the charge is sum of 49% and a symmetric 

adjustment. For strategic participations the capital charge 

is 22%.

Property

Methodology

Two –part factor based approach1. The book/adjusted carrying value is multiplied by a factor.

2. Encumbrances requirement is multiplied by an encumbrance

factor.

The total charge is (1) + (2). The factors are 10%

Schedule BA assets are assessed a 20% charge,

Scenario based approach-based on the loss of the basic

own funds resulting from an instantaneous decrease of 

25% in the value of the real estate
Page 68 of 130

Market risk (cont’d) (the market risk module is identical for life and non-life)

Spread

Methodology

Factor-based approach, varying by asset type and credit rating / 

quality. All factors are applied, to statement values of the specific 

assets. 

Bond factors are based on cash flow modelling using historically 

adjusted default rates for each bond category. A size factor 

reflects additional modelling for different size portfolios to reflect 

that risk increases as the number of bond issuers decreases.

A factor based approach (based on duration and credit 

rating/quality of financial instruments) is used. The 

financial instruments are classified in to three categories, 

(1) Bonds and loans, (2) tradable securities or other 

financial instruments based on repackaged loans and (3) 

credit derivatives, in calculating the capital requirements.

Concentration

Methodology

The concentration factor doubles the RBC factor up to a 

maximum 30% total charge applied to the carrying value of the 

10 largest asset exposures (e.g., common stock factor of 15% is 

doubled to 30%; BA asset factor is increased from 20% to 30%).

The concentration risk is calculated on the basis of single 

names exposures. The capital charge is calculated based 

on exposure exceeding certain thresholds, which 

depends on the credit quality of the exposures. 

Currency

Methodology Not applicable

Based on the higher of the capital requirements resulting 

from a 25% instantaneous increase in the value of foreign 

currency against the local currency and a 25% 

instantaneous decrease in the value of foreign currency 

against the local currency.

Counterparty default risk

Methodology

Factor based approach is applied to two categories 

1. Credit Risk-reinsurance- 10% of ceded balances for 

claims reserves and unearned premium. 10% is 

judgement factor reflecting various elements of 

reinsurance risk. 

2. Credit Risk-Other than reinsurance: Judgement values, 

@ 5% for most receivables, 1% for investment income 

due and accrued, and no charge for agents' balances, 

which are subject to statutory accounting valuation rules.

The Approach is applied to two categories:

1. A factor based approach using a combination of 

probability of default (based on Credit quality) and 

loss given default for risk-mitigation contracts, cash 

and commitment received covering a small (less than 

15) single names exposures; and

2. A scenario based approach for other (more 

diversified) counterparty default exposures.
Page 69 of 130

Non-Life Underwriting Risk

Non-Life premium 

and reserve

Methodology

Factor based approach applied in 3 parts:

1. Written premiums – factors developed by line of business 

using historical combined ratio (industry loss ratio data 

discounted at 5% per year plus company-specific 

expense ratio).

2. Reserves - factors developed by line of business based 

on discounted (5% per year) industry-wide reserve 

development patterns using a series of 9-year runoff 

data. Industry average run-off data is then compared to 

company specific development patterns over the most 

recent 9-year period. 

3. Premium and reserve concentration factors are applied 

to address cases where business is diversified over

multiple insurance lines vs. concentrated in a single line 

of business. 

There is also an “Excessive Premium Growth provision that 

includes a charge for rapidly growing premium volume (see 

Operational Risk). 

Factor based approach:

1. Premium and Reserves, 3 times the volatility for each 

line of business is applied. Specific standard 

deviations for each segment of business are applied 

separately for premium and reserves, and correlation 

factors are applied between segments of business.

2. Lapse risk: a scenario based approach is used.

Non-life 

catastrophe

 

Methodology

Currently Implicit in net premium risk charges. Proposal is based 

on 1-in-100 expected annual losses using one or more 3rd-party 

vendor models (data collection beginning in 2012 to separate 

property catastrophe loss data from other losses in the impacted 

lines of business). Target date for implementation is 2014. 

Factor based approach or Scenario based depending on 

the underlying risk for several sub-modules covering 

natural catastrophe, man-made catastrophe and other 

types of non-life catastrophe.
Page 70 of 130

Operational risk

Methodology

No explicit operational risk charge. There is a growth risk charge 

in the P&C formula. Growth in written premiums is determined at

the group level (if there is a group – otherwise solo experience). 

If 3-year average group premium growth is over 10%, factor

times latest year written premium is added to R5 (Premium Risk), 

and a different facto times total reserve added to R4 (reserve 

risk). 

Factor based approach, based on the sum of the lower of 

30% of the basic SCR and a proportion of earned 

premiums or technical provisions, plus 25% of expenses 

incurred during the last 12 months in respect of life 

contracts where the investment risk is borne by 

policyholders.

Non-life lapse and Intangible Asset risk are not captured in RBC so these risk modules have not been included in this table. All Solvency II calibrations are based on a 

99.5% Value at Risk over one year horizon, where as there is no specific risk measure and time horizon for RBC overall.
Page 71 of 130

Life risks RBC Solvency II Standard formula

Market risk (the market risk module is identical for life and non-life)

Interest rate

Methodology In the factor based approach, the factors represent the surplus 

necessary to provide for a lack of synchronisation of asset and 

liability cash flows and the risk categories vary by withdrawal 

provision Companies must submit an unqualified actuarial 

opinion based on asset adequacy testing to be eligible for a 

credit of one-third of the RBC otherwise needed. 

A cash flow testing technique may be used/required for part of 

the RBC on Certain Annuities and Single Premium Life 

Insurance.

Scenario based approach, based on the higher of the loss 

of the basic own funds, given two pre-determined 

upwards and downward shocks to the term structure of 

interest rates.

Equity 

Methodology For unaffiliated common stock, a 30% pre-tax factor is needed 

to cover 71approx. 95% of the greatest losses in common stock 

over a 2 year period and adjustments are made to account for 

differences between the insurer’s portfolio and the Standard 

and Poor’s 500. 

For affiliated common stock it is ‘calculated on a “see through” 

basis (multiplied by the percentage ownership). The pre-tax 

factor for common stock of other affiliates is set at 30 percent 

since many of these investments have risk characteristics 

similar to those of unaffiliated common stock.

A sensitivity analysis is completed using a factor of 100 percent 

due to management's knowledge and control of the affiliate.

A downward shock (which varies by type of equity) is 

applied. For Type 1 equities (i.e. equities listed in EEA or 

OECD), the charge is sum of 39% and a symmetric 

adjustment to cover the risk arising from changes in the 

level of equity prices. For Type 2 equities (i.e. unlisted or 

listed in non-EEA/non-OECD countries, private equities, 

hedge funds, commodities and other alternative 

investments), the charge is sum of 49% and a symmetric 

adjustment. For strategic participations the capital charge 

is 22%
Page 72 of 130

Market risk (the market risk module is identical for life and non-life)

Property

Methodology A factor based approach is used: (1) a 15% pre-tax factor for 

company owned real estate, (2) 23% for foreclosed real estate 

and (3) 23% for Schedule BA real estate because of the 

additional risks inherent in owning real estate through a 

partnership. 

Scenario based approach-based on the loss of the basic 

own funds resulting from an instantaneous decrease of 

25% in the value of the real estate.

Spread Bonds and unaffiliated Preferred stock

Methodology RBC charges are determined by applying a set of factors, 

varying by asset type and credit quality, to statement values of 

those assets. The bond factors are based on cash flow 

modelling over a 10 year time horizon using historically 

adjusted default rates for each bond category. The factors 

chosen for the proposed formula produce a level of surplus at 

least as much as needed in 92% of the trials by category and a 

96% level for the entire bond portfolio.

A factor based approach (based on duration and credit 

rating/quality of financial instruments) is used. The 

financial instruments are classified in to three categories, 

(1) Bonds and loans, (2) tradable securities or other 

financial instruments based on repackaged loans and (3) 

credit derivatives, in calculating the capital requirements.

Concentration

Methodology The asset concentration factor doubles the RBC factor up to a 

maximum of 45% of the 10 largest asset exposures. In addition, 

there is also a common stock concentration factor to reflect the 

additional risk of high concentrations in a single exposure of 

common stock. The common stock concentration factor 

increases by 50% the RBC factor for the five largest common 

stock exposures. 

The concentration risk is calculated on the basis of single 

names exposures. The capital charge is calculated based 

on exposure exceeding certain thresholds, which depends 

on the credit quality of the exposures. 

Currency

Methodology Not applicable

Based on the higher of the capital requirements resulting 

from a 25% instantaneous increase in the value of foreign 

currency against the local currency and a 25% 

instantaneous decrease in the value of foreign currency 

against the local currency.
Page 73 of 130

Counterparty default risk

Methodology Mortgages

Mortgages-Factors were derived from the results of a model 

developed by Walter C. Barnes and S. Michael Giliberto that 

relates the probability of loss on an impaired mortgage to its 

contemporaneous loan-to-value ratio. The factor also 

recognizes delinquency data from the Society of Actuaries 

“Commercial Mortgage Credit Risk Study.” 

Reinsurance

There is a risk associated with the recoverability of amounts 

from reinsurers. This is deemed comparable to that 

represented by bonds between risk classes 1 and 2 and is 

assigned a pre-tax factor of 0.8 percent.

Derivative Potential Exposure

The calculation of the risk of potential exposure is based on 

research supporting the Bank of International Settlements 

framework for banks. The off-balance sheet exposure as 

reported will measure this potential exposure for RBC 

purposes. The factors applied to the derivatives off-balance 

sheet exposure are the same as those applied to bonds.

The Approach is applied to two categories:

1. A factor based approach using a combination of 

probability of default (based on Credit rating) and loss 

given default for risk-mitigation contracts, cash and 

commitment received covering a small (less than 15) 

single names exposures (Type 1 exposures); and

2. A scenario based approach for other type of 

counterparty default exposures (Type 2 exposures).
Page 74 of 130

Life Underwriting risk

Mortality

Methodology In RBC, there are no explicit mortality or longevity risk charges 

but there is a Life insurance risk. The factors chosen represent 

surplus needed to provide for excess claims over expected, 

both from random fluctuations and from inaccurate pricing for 

future levels of claims. For a large number of trials, each 

insured either lives or dies based on a “roll of the dice” 

reflecting the probability of death from both normal and excess 

claims. The present value of the claims generated by this 

process, less expected claims, will be the amount of surplus 

needed under that trial. The factors chosen under the formula 

produce a level of surplus at least as much as needed in 95 

percent of the trials.

In Solvency II, the Life Underwriting risk module covers 

the following risks: Mortality, Longevity, Disabilitymorbidity, Life Expense, Revision, Lapse and Life 

catastrophe risk. 

Mortality risk: The capital requirement is the loss in basic 

own funds that would result from an instantaneous 

permanent increase of 15% in the mortality rates used for 

the calculation of technical provisions.

Longevity risk: The capital requirement is the loss in basic 

own funds that would result from an instantaneous 

permanent decrease of 20% in the mortality rates used for 

the calculation of technical provisions.

Operational risk

Methodology In RBC, there is no operational risk requirement but there are 

Business risks which are to a certain extent similar. For life and 

annuity business, the RBC pre-tax contribution is 3.08 percent

of Schedule T life premiums and annuity considerations before 

taxes. A smaller pre-tax factor of 0.77 percent is applied 

against Schedule T accident and health premiums. The smaller 

factor for accident and health business recognizes that general 

business risk exposure is, in part, a function of reserves.

Factor based approach, based on the sum of the lower of 

30% of the basic SCR and a proportion of earned 

premiums or technical provisions, plus 25% of expenses 

incurred during the last 12 months in respect of life 

contracts where the investment risk is borne by 

policyholders.

Disability-morbidity, Life expense, Revision, Lapse, Life Catastrophe and Intangible Asset risks are not captured in RBC so these risk modules have not been included in this 

table. All Solvency II calibrations are based on a 99.5% Value at Risk over one year horizon, where as there is no specific risk measure and time horizon for RBC overall.

Please note that Appendix A of TC3 (pages 68 - 74) does not purport to represent or pre-judge the views and/or the formal proposals of the EC. The approach described in 

the table is still under development, however, largely based on what was tested in the last full quantitative impact study (QIS5), the technical specifications for which are 

publicly available.
 Page 75 of 130

4. Reinsurance and Collateral Requirements

Executive summary: TC4 covers the key commonalities and differences that exist between 

both regimes in relation to the supervisory requirements for reinsurance and collateral. The 

main topics analyzed include the policy objectives, risk transfer requirements, credit for 

reinsurance and collateral requirements, capital requirements and consistency. A number of 

additional topics, including requirements relating to affiliated reinsurance transactions, 

concentration risk, securitization, reporting and U.S. market statistics are also considered. 

Several commonalities between the two regimes can be observed in terms of the overall 

policy objectives and the risk transfer requirements. Both regimes seek to ensure the ongoing 

solvency of domestic insurance and reinsurance companies in order to protect policyholders. 

Under both regimes, risk mitigation techniques must fulfill criteria relating to genuine and 

effective risk transfer in order to receive credit, although some differences between the two 

regimes do exist. Each also requires that ceding companies reflect the counterparty default 

risk associated with reinsurance in their capital requirements, although this is done in different 

ways. 

Both have specific requirements for reinsurance ceded by domestic insurers to foreign 

reinsurers and have recently established frameworks for reviewing the reinsurance solvency 

and supervisory regimes of other jurisdictions. However, there are key differences between 

the two regimes with respect to the requirements for recognition of reinsurance ceded to 

foreign reinsurers, and the frameworks for reviewing the regulatory regimes of foreign 

jurisdictions are different. In the EU, Member States are prohibited from requiring collateral 

in relation to reinsurance arrangements entered into with companies situated in equivalent 

third countries (reinsurance arrangements with these companies would be treated in the same 

manner as reinsurance arrangements concluded with EU reinsurers). Under the state-based 

regime in the U.S., the 2011 amendments to the NAIC Credit for Reinsurance Model Law 

(#785) and Credit for Reinsurance Model Regulation (#786) (NAIC Credit for Reinsurance 

Models) serve to reduce the prior reinsurance collateral requirements for non-U.S. licensed 

reinsurers that are licensed and domiciled in qualified jurisdictions, and those reinsurers will 

be required to post collateral according to their assigned rating. In the EU, decisions on third 

country equivalence in relation to reinsurance are effective across the EU and cannot be 

overridden by Member States, while in the U.S., collateral reduction is optional on the part of 

the states.

Topic 1: Policy Objectives 

Overall Policy Framework & Supervisory Regime

Key Commonalities 

In both regimes, the solvency regime applied to reinsurance companies largely mirrors the 

solvency regime applied to direct (primary) insurers. Also, both regimes seek to ensure the 
 Page 76 of 130

ongoing solvency of domestic insurance and reinsurance companies in order to protect 

policyholders. 

Key Differences

In the EU, reinsurance undertakings (defined as legal entities authorized to pursue reinsurance 

activities) are required to limit their objects to the business of reinsurance and related 

operations, although direct insurers may also be authorized to write reinsurance business. U.S. 

reinsurers are generally permitted to write insurance business on a direct or assumed basis. 

Insolvency Proceedings 

Key Commonalities 

In the state-based regime in the U.S. and in several EU Member States, reinsurance claims are 

subordinated to policyholders (direct insurance claims).44 

Certain jurisdictions within the U.S. (Rhode Island) and within the EU (the UK and Ireland) 

have a concept of Solvent Schemes of Arrangement, which allows a company and its creditors 

to agree on a value of the creditors’ current and future liabilities as a basis for negotiating a 

settlement or commutation. Other EU Member States have similar, but non-statutory, 

commutation schemes, which are also aimed at avoiding near-to-insolvency situations.

Although not all U.S. states maintain identical receivership statutes, the NAIC’s Accreditation 

Program (see TC6 report) provides that state law shall set forth a receivership scheme for the 

administration of insurance companies found to be insolvent that is substantially similar to 

that set forth in the NAIC’s Insurer Receivership Model Act (#555). In the EU, the law that 

applies when a reinsurer is wound up or becomes insolvent is a Member State competence. 

Similarly, the law that applies when an insurer is wound up or becomes insolvent is largely 

left to Member State competence. 

Topic 2: Risk Transfer Requirements

Key Commonalities

Under both regimes, risk mitigation techniques must fulfill criteria relating to genuine and 

effective risk transfer in order to receive credit, however the specific criteria differs.

 

44 The UK, Italy and the Netherlands are examples of Member States where reinsurance claims are subordinated to the claims 

of policyholders. Germany is an example of a Member State where the prior rank of claims of policyholders depends on 

certain conditions so that reinsurance claims are not automatically subordinated to the claims of policyholders and may in 

some cases share the same ranking.
 Page 77 of 130

Key Differences

Under the state-based regime in the U.S., contractual features of the reinsurance arrangement 

must not prevent timely reimbursement. Reinsurers must undertake to indemnify the ceding 

entity against loss or liability by reason of the original insurance, such that the reinsurer 

assumes significant insurance risk and it is reasonably possible that the reinsurer may realize a 

significant loss. With respect to the property and casualty business under the state-based 

regime in the U.S., credit for reinsurance is not allowed unless the agreement contains the 

essential element of transfer of insurance risk (both underwriting risk and timing risk). With 

respect to life business, it is required that reinsurance agreements transfer all of the significant 

risks inherent in the business being reinsured in order to receive reinsurance accounting 

treatment. 

Under the EU regime, there must be effective transfer of risk and the extent of cover and 

transfer of risk must be clearly defined and incontrovertible. A contractual arrangement must 

not be subject to any conditions which could undermine the effective transfer of risk. 

Reinsurance arrangements must be legally effective and enforceable and the undertaking must 

have a direct claim on the counterparty in the event of a default, insolvency or bankruptcy of a 

counterparty or other credit event. 

Topic 3: Credit for Reinsurance & Collateral Requirements

Credit for reinsurance 

Key Commonalities 

Both regimes give credit for the transfer of risk to reinsurers, subject to certain conditions. 

Partial credit may also be given where conditions are largely, but not fully, met. The credit for 

the transfer of risk to reinsurers is reflected in the recording of recoverable assets or reduced 

insurance liabilities (technical provisions in the EU). 

Key Differences

A U.S. ceding company is only allowed to take statutory credit for reinsurance ceded to an 

assuming reinsurer meeting one of the following requirements: 

• The reinsurer is licensed in the same state of domicile as the ceding company for a like 

kind of business. 

• The domiciliary insurance department of the ceding company accredits the reinsurer. 

• The reinsurer is domiciled and licensed in a state with substantially similar credit for 

reinsurance laws as the state of the ceding company.

• The reinsurer provides collateral in the form of a multiple beneficiary trust. 
 Page 78 of 130

• The reinsurer is certified and approved for collateral reduction by the domestic state of 

the ceding insurer. 

• The reinsurer provides collateral or other security to the ceding insurer. 

In the EU, credit for reinsurance is expected to be contingent on the reinsurer being either: 

• An EU company which complies with the SCR; 

• A third-country company situated in a third country whose solvency regime for 

reinsurance activities is equivalent to Solvency II and which complies with the 

solvency requirements of that third-country; or 

• A third country insurance or reinsurance undertaking situated in a third country that is 

not equivalent and which is rated at least investment grade quality45. 

Collateral

Key Commonalities

While the conditions relating to the recognition of reinsurance credit by a cedent are different 

under the two regimes, both have specific requirements for reinsurance ceded by domestic 

insurers to foreign reinsurers. Under both regimes, credit for reinsurance ceded to an 

assuming insurer domiciled in the same jurisdiction (U.S. state/EU Member State) as the 

ceding insurer may be taken without collateral or other security being posted by the reinsurer. 

Both Solvency II and the 2011 revisions to the NAIC Credit for Reinsurance Models have 

established frameworks for reviewing the reinsurance solvency and supervisory regimes of 

other jurisdictions. 

Key Differences

The EU’s regime distinguishes between reinsurance arrangements entered into with 

undertakings with their head office in a third country whose solvency regime is equivalent to 

Solvency II and undertakings situated in other third countries. The criteria for determining the 

equivalence of a third country’s solvency or prudential regime46 are intended to ensure that 

the third country reinsurer is subject to solvency requirements equivalent to those imposed on 

EU reinsurers. 

In the EU, for reinsurers domiciled in non-EU jurisdictions that are considered equivalent, the 

reinsurance arrangement would be treated in the same manner as reinsurers concluded with 

EU reinsurers (not more favorably). Member States are prohibited from requiring collateral in 

relation to reinsurance arrangements entered into with companies situated in equivalent third 

 

45 The measures that will implement Solvency II are likely to introduce the concept of credit quality steps, with the lowest 

investment grade being equivalent to credit quality step 3. 46 Referred to throughout as "third country equivalence.”
 Page 79 of 130

countries. With respect to jurisdictions which have not been found to be equivalent, Solvency 

II leaves the option of imposing collateral requirements to the Member State; however, if the 

reinsurance arrangement is with a third country undertaking in a regime which is not 

equivalent and the reinsurer has a credit rating lower than investment grade, it is expected that 

Solvency II will require collateral to be held by a deposit taking institution rated at least 

investment grade if the insurer wishes to take credit for the arrangement. 

Those Member States which currently impose collateral requirements in relation to 

reinsurance arrangements entered into with third country undertakings may continue to do so 

under Solvency II in relation to undertakings situated in third countries that are not considered 

to be equivalent. The Member States that currently impose collateral include France and 

Portugal. 

Under the state-based regime in the U.S., the 2011 amendments to the NAIC Credit for 

Reinsurance Models serve to reduce reinsurance collateral requirements on a prospective 

basis for non-U.S. licensed reinsurers that are licensed and domiciled in qualified 

jurisdictions. Previously, in order for U.S. ceding companies to receive reinsurance credit, the 

reinsurance was required to be ceded to U.S. licensed reinsurers or secured by collateral 

representing 100% of U.S. liabilities for which the credit is recorded. The model revisions 

establish a certification process for reinsurers under which a certified reinsurer is eligible for 

collateral reduction with respect to contracts entered into or renewed subsequent to 

certification. Each state will have the authority to certify reinsurers or to recognize the 

certification issued by another NAIC-accredited state. 

The 2011 revised NAIC Credit for Reinsurance Models introduce the concept of qualified 

jurisdictions, as well as the financial strength and business practices of the reinsurer, in 

determining collateral requirements. A certified reinsurer must be domiciled and licensed in a 

qualified jurisdiction in order to be eligible for collateral reduction. The process for 

determining qualified jurisdictions is still being developed.

The proposed revisions to the key elements of the reinsurance ceded accreditation standard 

with respect to collateral reduction are an optional standard on the part of the states. In other 

words, states can maintain the 100% collateral requirement on non-U.S. licensed reinsurers 

and remain accredited. If a state enacts reinsurance collateral reduction measures, those 

measures would be required to be substantially similar (i.e. similar in force and no less 

effective) to the key elements of the NAIC models. With respect to jurisdictions which have 

not been found to be qualified, the revised NAIC models would require 100% collateral to be 

posted. With respect to jurisdictions deemed qualified, the revised NAIC models would allow 

states to require 100% collateral or reduced collateral requirements based upon a rating of that 

reinsurer. 
 Page 80 of 130

Currently, eleven states have enacted reduced collateral provisions (Florida, New York, New 

Jersey, Indiana, Virginia, Connecticut, California, Louisiana, Pennsylvania, Georgia and 

Delaware), with other states currently considering proposals47. 

The Dodd-Frank Act also authorizes the Secretary of the Treasury and the U.S. Trade 

Representative jointly to negotiate and enter into bilateral or multilateral agreements 

regarding prudential matters with respect to the business of insurance or reinsurance. FIO will 

assist the Secretary with those responsibilities.

The Dodd-Frank Act included the Nonadmitted and Reinsurance Reform Act (NRRA). With 

respect to the regulation of credit for reinsurance and reinsurance agreements, the NRRA 

provides that if the state of domicile of a ceding insurer is an NAIC-accredited state, or has 

financial solvency requirements substantially similar to the requirements necessary for NAIC 

accreditation, and recognizes credit for reinsurance for the insurer’s ceded risk, then no other 

state may deny such credit for reinsurance. The NRRA also provides that all laws, regulations, 

provisions, or other actions of a state that is not the domiciliary state of the ceding insurer, 

except those with respect to taxes and assessments on insurance companies or insurance 

income, are preempted to the extent that they:

• restrict or eliminate the rights of the ceding insurer or the assuming insurer to resolve 

disputes pursuant to contractual arbitration to the extent such contractual provision is 

not inconsistent with the provisions of title 9, Unites States Code; 

• require that a certain state’s law shall govern the reinsurance contract, disputes arising 

from the reinsurance contract, or requirements of the reinsurance contract; 

• attempt to enforce a reinsurance contract on terms different than those set forth in the 

reinsurance contract, to the extent that the terms are not inconsistent with this part; or 

otherwise apply the laws of the state to reinsurance agreements of ceding insurers not 

domiciled in that state. 

With respect to the regulation of reinsurer solvency, the NRRA provides that if the state of 

domicile of a reinsurer is an NAIC-accredited state or has financial solvency requirements 

substantially similar to the requirements necessary for NAIC accreditation48, such state shall 

be solely responsible for regulating the financial solvency of the reinsurer. Furthermore, 

nondomiciliary states may not require the reinsurer to provide any additional financial 

information other than the information the reinsurer is required to file with its domiciliary 

state. 

The following is a comparison of several key elements of the revised models (to include the 

optional collateral reduction provisions) with the requirements under Solvency II: 

• Under the state-based regime in the U.S., each state may evaluate a non-U.S.

jurisdiction in order to determine if it is a “qualified jurisdiction.” A list of qualified 

jurisdictions will be published through the NAIC Committee Process, which is 

 

47 These eleven states wrote approximately 40% of the U.S. direct premium written in 2011. 48 The NAIC’s accreditation program is described in the report of TC6. 
 Page 81 of 130

currently under development by the NAIC. A state must consider this list in its 

determination of qualified jurisdictions, and if the state approves a jurisdiction not on 

this list, the state must thoroughly document the justifications for approving this 

jurisdiction in accordance with the standards for approving qualified jurisdictions 

contained in the model regulation. In the EU, decisions on third country equivalence in 

relation to reinsurance would be taken by the European Commission (EC), not by 

Member States. Those decisions are effective across the EU, i.e. a Member State 

cannot override the legal consequences of an equivalence decision at national level. 

• Under the state-based regime in the U.S., the criteria for determining whether a 

jurisdiction is qualified are based on the appropriateness and effectiveness of the 

reinsurance supervisory regime of the jurisdiction and the extent of reciprocal 

recognition by the non-U.S. jurisdiction. The issue of how appropriateness and 

effectiveness will be judged is still in a state of development, but is likely to be 

qualitative. In the EU, the criteria for determining the equivalence of a third country’s 

solvency or prudential regime are based on the high-level principles set out in the 

Solvency II Directive. 

• Under the state-based regime in the U.S., a certified reinsurer will be eligible for 

collateral reduction with respect to contracts entered into or renewed subsequent to 

certification. A state will evaluate a reinsurer that applies for certification, and will 

assign a rating based on the evaluation. Evaluation criteria include, but are not limited 

to, financial strength, timely claims payment history, and the requirement that a 

reinsurer be domiciled and licensed in a “qualified jurisdiction.” A certified reinsurer 

will be required to post collateral in an amount that corresponds with its assigned 

rating in order for a U.S. ceding insurer to be allowed full credit for the reinsurance 

ceded. Financial strength ratings49 are one factor a state will use to evaluate a reinsurer 

and assign a rating which establishes the collateral requirement applicable to the 

reinsurer (Secure-1 = 0%, Secure -2 = 10%, Secure 3 = 20%, Secure-4 = 50%, Secure5 = 75%, Vulnerable-6 = 100%). The lowest financial strength rating from an 

approved rating agency establishes a maximum rating that can be assigned by the state 

(i.e. it establishes the maximum amount of collateral reduction allowed for the 

reinsurer).50 Factors beyond the financial strength rating may be used to support an 

increase in the reinsurer’s collateral requirement but can never be used to support a 

further reduction in the collateral requirement. An upgrade in the certified reinsurer’s 

assigned rating applies on a prospective basis, while a downgrade applies to all 

business entered into as a certified reinsurer. The EU ban on collateral for equivalent 

third countries is not discretionary. The EU does not link the ban on collateral in 

equivalent third countries to the rating of companies in those countries. The EU’s ban 

 

49 Under the revised NAIC models, in order to be eligible for certification, a reinsurer is required to maintain at least two 

financial strength ratings from approved rating agencies. 

50 The model regulation indicates how the lowest financial strength rating from a rating agency corresponds to an applicable 

rating in the aforementioned rating scale.
 Page 82 of 130

on the imposition of collateral for reinsurance arrangements with undertakings in 

equivalent third countries applies to all current and existing contracts.51

• Under the state-based regime in the U.S., financial statements are one of the criteria 

used by the commissioner in determining a certified reinsurer’s rating/collateral 

requirement. Certified reinsurers from qualified jurisdictions must file audited 

financial statements52 and must meet ongoing filing requirements. There are no similar 

requirements imposed on reinsurers from equivalent third countries in the EU.

• Under the state-based regime in the U.S., reinsurance contracts entered into or 

renewed with a certified reinsurer shall include a proper funding clause, which 

requires the certified reinsurer to provide and maintain security in an amount sufficient 

to avoid the imposition of any financial statement penalty on the ceding insurer under 

this section for reinsurance ceded to the certified reinsurer.53 The EU’s regime does 

not have a concept of a funding clause. However, all EU reinsurers must hold capital 

to meet their MCR and their SCR. 

Topic 4: Capital Requirements 

Key Commonalities 

Under both regimes, insurers ceding reinsurance must reflect the counterparty default risk 

associated with reinsurance counterparties in their capital requirements. 

Key Differences

The state-based regime in the U.S. generally applies a fixed RBC charge for the recoverable 

depending on the primary insurance type (e.g., life, P&C and health). Hence, RBC reflects the 

credit risk associated with the recoverables from the reinsurer through the use of fixed factors. 

These factors vary by primary insurer type, but do not currently capture the credit risk specific 

to the counterparty or the reinsurance arrangement, nor collateral arrangements entered into 

for commercial reasons. However, the NAIC is currently considering refinement to the credit 

risk charge for reinsurance recoverables. Statutory accounting guidance requires an 

assessment of the collectability of reinsurance recoverables, provides for a minimum reserve 

for uncollectible reinsurance with an additional reserve required if an insurer’s experience 

indicates that a higher amount should be provided and does not allow credit for amounts 

determined to be uncollectible. 

 

51 Note that the impact of collateral arrangements that have been entered into for commercial reasons on capital requirements 

for EU ceding insurers is discussed under Topic 4.

52 Audited U.S. GAAP basis financial statements to be filed if available, audited IFRS basis statements are allowed but must 

include an audited footnote reconciling equity and net income to a U.S. GAAP basis, or, with the permission of the state 

insurance commissioner, audited IFRS statements with reconciliation to U.S. GAAP certified by an officer of the company.

53 Under the state-based regime in the U.S., additional terms are required for reinsurance agreements in general, for example 

an insolvency clause and a reinsurance intermediary clause when applicable. 
 Page 83 of 130

The approach envisaged under the EU regime is based upon the probability of default and the 

loss given default of the counterparty. Where collateral arrangements have been entered into 

for commercial reasons, the loss given default in the calculation of counterparty default risk is 

lower.54 

In the state-based regime in the U.S., RBC uses premium, claim and reserve amounts on a net 

of reinsurance basis. This is also the case for the EU with respect to the factor based, SCR 

standard formula calculations. The scenario based capital calculations in the EU’s SCR 

standard formula take into account the impact of risk mitigation techniques, including 

reinsurance, by looking at the change in value of assets and liabilities in different scenarios. 

In addition to capital requirements on counterparty default risk, the EU requires amounts 

recoverable from reinsurance and SPVs to be adjusted for the expected losses due to 

counterparty default in the technical provisions calculation. 

Topic 5: Consistency 

Key Commonalities 

Both regimes issue guidelines and standards with the aim of fostering supervisory 

convergence and uniformity amongst U.S. states and Member States respectively in the area 

of reinsurance regulation, including credit for reinsurance and collateral. 

Key Differences

The NAIC Accreditation Program, which is further explained in TC6, provides financial 

regulation standards that apply to the regulation of insurers and reinsurers, including a 

specific standard with respect to reinsurance ceded. The Reinsurance Ceded Accreditation 

Standard requires that state law should contain the NAIC Credit for Reinsurance Model Law 

(#785) and Credit for Reinsurance Model Regulation (#786) and the NAIC Life and Health 

Reinsurance Agreements Model Regulation (#791), or substantially similar laws. The NAIC's 

Accreditation Program, while voluntary in nature, establishes baseline standards for insurance 

company financial solvency regulation by the states. A state’s ability to enact solvency 

regulation that is more effective than the standard is preserved. 

 

54 The formula for counterparty default risk and its components will be set out in the measures that will implement Solvency 

II and is therefore subject to change. As noted, the determination of counterparty default risk is based upon the probability of 

default and the loss given default of the counterparty. The probability of default is likely to be determined either by reference 

to the credit rating of the counterparty or where this credit rating is not available and the counterparty is an EU insurance or 

reinsurance undertaking based on its solvency ratio. For counterparties that are insurance or reinsurance undertakings in 

equivalent third countries, compliance with the solvency ratio can be used where a credit rating is not available. In this case, 

it is likely that the probability of default where the third country insurance or reinsurance undertaking meets the third 

country's solvency requirement will be the same as for EU undertakings with a 100% solvency ratio. It is currently envisaged 

that loss given default will be a function of the best estimate of the recoverable amount from the reinsurance arrangement and 

the risk mitigating effect on the underwriting risk of the reinsurance arrangement minus the risk-adjusted value of the 

collateral that would be available under the reinsurance arrangement. 
 Page 84 of 130

The proposed revisions to the key elements of the reinsurance ceded accreditation standard 

with respect to collateral reduction are an optional standard on the part of the states; however, 

any reinsurance collateral reduction legislation enacted by a state would be required to be 

substantially similar to the key elements of the NAIC models in order for a state to remain 

accredited. To date, eleven states have implemented reinsurance collateral reduction under 

their laws, although other states are currently in the process of implementing these revisions. 

In the EU, Solvency II will greatly reduce any differences in the laws/regulations and 

practices of Member States that exist under Solvency I and which were evidenced in the 

Committee of European Insurance and Occupational Pensions Supervisors’ (CEIOPS) survey 

carried out in 200955. This is because the requirements relating to credit for reinsurance and 

collateral explicitly restrict the actions of Member States in certain cases and are set out in 

European law. The CEIOPS survey provides some indication of the additional requirements 

that Member States may continue to impose in relation to reinsurance arrangements with 

companies in third countries whose regime is not equivalent. 

A consistent and harmonized approach among European supervisory authorities will also be 

ensured by technical standards and guidelines which EIOPA is currently developing. 

Topic 6: Other 

6.1 Affiliated Reinsurance Transactions and Concentration Risk 

Key Commonalities 

Neither regime provides explicit limits on the amount of reinsurance that can be ceded to a 

specific reinsurer or group of related reinsurers.

Key Differences

In the U.S., companies must obtain prior supervisory approval before entering into pooling 

arrangements or any material reinsurance transaction with an affiliated party. The IHC Model 

Act, which applies directly to insurers and indirectly to non-insurance holding companies, 

allows states to regulate transactions between insurers and other affiliated entities. The model 

includes provisions relating to reinsurance between affiliated companies with common 

ownership or control. There are no special requirements for affiliated reinsurance in the EU. 

In the EU, the effects of intra-group reinsurance are eliminated for group solvency purposes

 

55https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/CEIOPS-ConCo-05-09-report-questionnaire-treatmentof-3rd-countries-reinsurers.pdf
 Page 85 of 130

(see report of TC2). EIOPA is drafting guidelines on the recognition of pooling arrangements, 

but these are not expected to propose different treatments for affiliated and non-affiliated 

parties. 

The NAIC recently adopted new notification requirements applicable to ceding insurers with 

respect to concentration risk of reinsurance ceded (concentration risk at the group level is also 

discussed in the report of TC2). Under the proposed accreditation standard, the concentration 

risk notification requirements are applicable to reinsurance ceded to both U.S. and non-U.S.

reinsurers; however, they would only be required to be enacted by those states that are 

implementing reduced collateral requirements. U.S. state regulators have additional authority 

through state laws which are substantially similar to the NAIC’s Model Regulation to Define 

Standards and Commissioner’s Authority for Companies Deemed to be in Hazardous 

Financial Condition (#385) and to the IHC Model Act (with respect to affiliated transactions). 

There is not an RBC charge related to reinsurance concentration risk. In the EU, all 

companies must hold capital against concentration risk. The EU’s requirements on 

concentration risk are not linked to the imposition of collateral. 

6.2 Reinsurance Securitization

Key Commonalities 

Under both regimes, credit for reinsurance may be allowed for transfer of risk through 

insurance securitizations, when certain conditions are met. The EU regime gives credit for 

effective risk transfer to SPVs. The EU regime is expected via implementing measures to 

require SPVs to be bankruptcy remote, i.e. effective arrangements exist which ensure that the 

assets of the SPV are at all times protected from the insolvency proceedings of associated 

undertakings. In the U.S., securitizations using protected cells must isolate assets and 

liabilities related to an insurance securitization, and are protected from the insolvency of the 

rest of the insurer. The NAIC's Special Purpose Reinsurance Vehicles Model Act (#789) 

(SPRV Model Act) requires SPRVs to be fully funded, and provides that the SPRV may not 

be controlled by, may not control, or may not be under common control with, any ceding 

insurer that is a party to an SPRV contract. Under both regimes the assets of the SPV/SPRV 

are valued at market/fair value. 

The EU requires Member States to make the establishment of SPVs in their territories subject 

to authorization. In the state-based regime in the U.S., SPRVs must obtain a certificate of 

authority, limited to the purpose of entering into insurance securitization transactions under a 

SPRV contract. The NAIC has taken measures to actively promote the use of SPRVs 

established onshore, including exemptions from insurance laws, within limitations, though the 

SPRV Model Act is not widely adopted by the states and is not required to be enacted by the 

states under the NAIC Accreditation Program. The majority of SPVs created to securitize 

U.S. risk are formed offshore or onshore through state captive laws. The captive law in 

several states permits the creation of special purpose financial captives, which would enable 
 Page 86 of 130

captive insurance companies to facilitate risk securitization transactions in order to access 

additional sources of capital. 

In both regimes, the SPV/SPRV requirements must be met for undertakings to take credit for 

the securitization.

Key Differences

The NAIC has taken measures to actively promote the use of SPRVs established onshore, 

including exemptions from insurance laws, within limitations, though the SPRV Model Act is 

not widely adopted by the states and is not required to be enacted by the states under the 

NAIC Accreditation Program. The majority of SPVs created to securitize U.S. risk are formed 

offshore or onshore through state captive laws. The captive law in several states permits the 

creation of special purpose financial captives, which would enable captive insurance 

companies to facilitate risk securitization transactions in order to access additional sources of 

capital. There is no analogous provision in the E.U. 

6.3 Reporting 

Key Commonalities 

Both regimes provide for supervisory reporting, data collection and analysis, and disclosure 

requirements with respect to reinsurance assumed or ceded by domestic insurers. Both 

regimes require companies to report their solvency and financial condition to supervisors. 

Certain information must also be publicly disclosed. Supervisory reporting and public 

disclosure requirements include information relating to reinsurance arrangements, including 

reinsurance recoverables, receivables and payables. 

Key Differences

While both regimes require disclosure of significant information with respect to reinsurance, 

the degree to which this information is available to the public varies. In the state-based regime 

in the U.S., public disclosure requirements include historical data and the level of detail 

disclosed is assumed to be higher. The EU is still in the process of developing its disclosure 

requirements. Solvency II requirements on reporting and public disclosure go in a similar 

direction to the U.S.; this is analyzed in more detail in the report of TC5. 

6.4 Statistics

A significant portion of the risk ceded by U.S.-domiciled companies goes to reinsurers 

domiciled outside of the U.S. With respect to unaffiliated reinsurance market share, the 

Reinsurance Association of America indicated in its 2010 year-end data analysis Offshore 

Reinsurance in the U.S. Market that U.S.-domiciled professional reinsurance companies 

accounted for just over 40% of the premium assumed from U.S. ceding insurers, while alien 

or offshore companies accounted for just less than 60%. These statistics should be seen in the 
 Page 87 of 130

context of reinsurance business globally and the geographical diversification of risk. The total 

premium ceded to unaffiliated offshore reinsurers was $24.5 billion, with net recoverables of 

$36 billion. It should be noted that the data is derived from the Schedule F (property/casualty) 

of the annual statements of each company that are filed with the NAIC and excludes 

premiums ceded to non-reinsurance companies as well as to pools and associations. 
 Page 88 of 130

5. Supervisory Reporting, Data Collection and Analysis and Disclosure

Executive summary: While there are differences in the means by which the EU regime and 

the state-based regime in the U.S. handle reporting, data collection and analysis, there is much 

similarity in the overall objectives and approach. Both regimes seek or require:

• Harmonized comprehensive reporting requirements, covering both solo undertakings 

and groups; 

• Data analysis to identify key risks for insurers/groups and the market as a whole; 

• A comprehensive database and repository, based on a harmonized IT format, to 

facilitate the analysis process at the solo, group and market levels; however, there is a 

difference in the main point of entry and repository for data (NAIC on behalf of the 

states in the U.S., national supervisory authorities in the EU); 

• Disclosure requirements on undertakings/groups; and 

• The use of reporting to monitor compliance with regulatory requirements. 

In the EU, ORSA reporting will be in place under Solvency II. ORSA reporting will also be in 

place for the state-based regime in the U.S (see also the report of TC2 for ORSA reporting by 

groups). 

Topic 1: Policy objectives in relation to reporting, data collection and analysis 

This topic deals with the overall objectives of reporting requirements and of the related data 

collection and analysis.

Key Commonalities 

A key component of both regimes involves reporting of data by solo undertakings and groups 

to, and the collection and analysis by, supervisory authorities. 

Both regimes seek to ensure harmonized reporting to collect data needed for supervisory 

purposes; to ensure that publicly reported information is clear and not misleading; and to 

promote transparency, simplicity and fairness, while not being overly burdensome to smaller 

or less complex undertakings. In addition, both regimes seek to enable an assessment of an 

undertaking’s solvency and overall financial condition, first and foremost, as well as its 

governance, its business, valuation principles, risk and risk management system, capital 

structure and capital management; to detect financially stressed undertakings; to support the 

off-site analysis and on-site exam processes; and to analyze market trends and risks to 

encompass a market level approach. 
 Page 89 of 130

Key Differences

While the two regimes have the above objectives in common, there are differences in the 

means by which these objectives are achieved. In addition, there are differences in terms of 

the related supervisory processes that are in place today on a centralized basis as compared to 

what will be in place in the future. While individual U.S. states and EU Member States have 

their own experience and capabilities with regard to reporting, data collection and analysis, 

for purposes of this exercise consideration was given specifically to how those functions are 

harmonized and centralized, i.e., across the U.S. states and across the EU Member States. 

For example, the state-based insurance regulatory regime in the U.S. has a mature harmonized 

reporting, data collection and analysis function that has been administered by the NAIC for 

years; it has evolved and will continue to do so. In the EU, while national reporting systems 

are also mature and continuously improving, Solvency II will put in place for the first time a 

harmonized prudential reporting and data collection process across EU Member States that, 

when fully operational and having matured with experience, should function in a similar way 

as that utilized by the state-based regime in the U.S. However, in the EU the first point of 

entry of information from undertakings and most of the data analysis will remain at the 

Member State level. 

Finally, as it is important for the full understanding of all topics, we highlight that in the EU, 

with the Solvency II regime a clear distinction is made between accounting and prudential 

information. For the state-based regime in the U.S. prudential information is based on 

accounting with the application of prudential filters, while in the EU, Solvency II establishes 

valuation rules of assets and liabilities creating a distinction between accounting values and 

solvency values. For more information on this topic please refer to the TC3 report. 

Topic 2: Reporting Requirements 

This topic aims at describing the reporting requirements in the both regimes, especially with 

regard to content, structure and delays, and also with an emphasis on specific items like 

ORSA or groups. 

Key Commonalities 

For both regimes reporting requirements are based on the following elements: 

• Regular and ad-hoc reporting; 

• Reporting of both narrative/qualitative and quantitative information; 

• Regular information provided quarterly and annually (with a more extensive set 

provided annually); 

• Templates provided in a standardized format for regular reporting of quantitative 

information, and also in some cases for qualitative information. 
 Page 90 of 130

More specifically, the following documents are to be filed with state insurance supervisors in 

on a regular (at least annual) basis:

• For the state-based regime in the U.S.: 

o Annual Statements and supplementary filings, including notes and quantitative 

schedules (e.g., investment schedules); 

o Quarterly Statements and supplementary filings (which are a core set of the 

annual ones); 

o RBC filings;

o Management’s Discussion and Analysis (MD&A);

o Management’s Report of Internal Control over Financial Reporting, for 

undertakings with more than $500 million in annual premiums; 

o Actuarial Opinion and a more detailed Actuarial Report/Memorandum; 

o Reinsurance attestation for P&C undertakings; and

o ORSA filing (forthcoming, with exemptions based on premiums). 

o For listed companies, SEC filings are also available to supervisors, as well as 

the public. 

• In the EU: 

o Solvency and Financial Conditional Report (SFCR); 

o Regular Supervisory Report; 

o ORSA Supervisory Report; 

o Annual Quantitative Reporting Templates (QRTs); 

o Quarterly QRT (which is a core set of annual reports); and

o Quarterly Financial Stability QRT, for undertakings over a certain size 

threshold. 

In terms of filing deadlines for the submissions, there are some differences but the objective is 

the same with a longer submission deadline for annual filings:

• In the state-based regime in the U.S., annual filings are due March 1 of the subsequent 

year, and quarterly filings are due 45 days after the end of the quarter.
 Page 91 of 130

• In the EU, as of 201756, annual submissions are due 14 weeks after the financial year 

end, and quarterly submissions are due 5 weeks after the quarter end; groups have an 

additional 6 week deadline in both cases, except for financial stability purposes. 

An important commonality of both regimes is that they rely in particular on standardized 

templates and schedules, which enable a harmonized transmission of comparable data 

(between undertakings, and between states) and facilitate its analysis. These standardized 

reporting requirements also aim at reducing the need for ad hoc requests.

Concerning the structure of narrative requirements, there is a slight distinction insofar as the 

structure of the narrative SFCR and RSR is imposed in the EU (but not the structure of the 

ORSA report), whereas more freedom is left to the insurer for the MD&A in the state-based 

regime in the U.S. However, in spite of this difference, there are many commonalities in terms 

of content, as described below. 

Outside of regular reporting, both regimes allow for additional or more frequent (e.g., 

monthly) ad hoc reporting, especially in the case of a difficult financial situation of an 

undertaking, following pre-defined events, or to address market-wide issues or crises. Also, 

non-harmonized information is usually required within the different steps of the supervisory 

process, e.g., in preparing for an on-site inspection or responding to questions from 

supervisory analysts. 

Concerning the content of regular reporting, many commonalities can be identified between 

the information required by both regimes, although the specific layout of the data may differ. 

In particular, the following main topics are addressed in both regimes, through narrative 

and/or quantitative requirements: 

• Business and performance (U.S. states: MD&A; EU: SFCR and RSR);

• Risk profile (U.S. states: MD&A, actuarial report/memorandum, financial statements, 

ORSA, Enterprise Risk Report; EU: SFCR, RSR, QRT, ORSA report); 

• Valuation methods and assumptions used (U.S. states: notes to financial statements, 

actuarial opinion and actuarial report/memorandum; EU: SFCR, RSR);

• Capital requirements and management (U.S. states: RBC filing; EU: SFCR, RSR, 

QRT); and

• Quantitative information on premiums, balance sheet, investments, technical 

provisions, own funds, capital requirements and reinsurance (U.S.: Annual Statement, 

notes to financial statements; EU: QRT).

An important common feature is that both regimes (in the EU under consideration) require the 

regular reporting of a detailed list of investments, enabling a thorough risk analysis 

 

56 Solvency II will most probably include a transitional period for reporting due dates (information will be due after 5/14 

weeks for solo from 2017owards, but the deadlines will be longer for information to be reported with reference to the end of 

2014, 2015 and 2016)
 Page 92 of 130

concerning assets, both at the entity and market levels, and reducing the need for ad hoc 

requests to assess such risks.

Key Differences

The main differences concerning content of regular reporting requirements are related to 

governance (including risk management; see also report of TC2 for governance requirements 

on groups): the EU includes a detailed description of the system of governance and risk 

management system in the narrative SFCR and RSR (which gives a first overview in order to 

enable further analysis especially on-site), while the state-based regime in the U.S. prefers the 

monitoring to occur mostly through on-site examination processes and focuses on expected 

outcomes, without including a description in regular reporting requirements as such, except 

specific information included in the financial statements and in Management’s Report of 

Internal Control over Financial Reporting, for undertakings with more than $500 million in 

annual premiums. This will also be enhanced in the future on the U.S. side with ORSA and 

Enterprise Risk reports. 

Concerning reporting on the ORSA, it will be put in place in both regimes over the coming 

years. However, in the EU, it is fully integrated within the Solvency II framework, whereas in 

the state-based regime in the U.S., the ORSA is still pending the implementation of the 

forthcoming model law, following the NAIC guidance manual on ORSA, and is not integrated 

in the capital framework as such. The content of the ORSA requirement in the state-based 

regime in the U.S. and the ORSA supervisory report in the EU is expected to present some 

commonalities, especially in terms of assessment of risks. Another difference is related to the 

scope of application, insofar as all undertakings submitted to Solvency II in the EU will have 

to perform an ORSA (and submit an ORSA supervisory report) at least annually, whereas in 

the state-based regime in the U.S. there will be exemptions based on premium volume or upon 

decision of a commissioner. 

Concerning reporting requirements for groups, the approach is somewhat different between

the two regimes. In the state-based regime in the U.S., groups submit holding company 

filings, which are distinct from requirements of individual undertakings and focus on IGTs

rather than on consolidated data. In the EU, groups have to make similar submissions to that 

of solo undertakings, including SFCR (possibly a single group-wide document upon 

authorization of the group supervisor), RSR, QRT and ORSA report: the information required 

is similar to solo requirements but on a consolidated basis, and also includes group-specific 

additional requirements such as data on capital requirements, IGTs and risk concentrations.

See also the report of TC2. 

There are also some common requirements to both regimes with regards to groups, such as 

requirements to submit an organizational chart of the group or data on IGTs; there is also in 

both regimes the possibility to provide a single ORSA report at the level of the group. 
 Page 93 of 130

Topic 3: Database Systems 

This topic addresses the means by which each of the two supervisory regimes provide for an 

electronic database to receive and store in a secured manner data reported by solo 

undertakings and by groups and in a manner that enhances data validation and analytical 

capabilities at the solo, group and market levels. 

Key Commonalities 

Both regimes seek/have a comprehensive database and repository to enable retrieval and 

analysis of information at the solo, group and sector levels. However, technological 

requirements and management responsibilities may vary. 

Key Differences

In the EU each national supervisor currently maintains its own database and collects data 

directly from undertakings, usually in the form of Excel and PDF files. The EU does not 

currently maintain a centralized database; however, under Solvency II the EU will have a 

centralized database to be administered by EIOPA and which will function in parallel along 

with existing national databases of competent authorities in Member States and only to 

perform EIOPA tasks, which include: 

• Coordinating cross-border supervision, facilitating the cooperation between 

supervisors, promoting convergence of supervisory practices, and monitoring proper 

implementation of a European single rule book applicable to all financial institutions 

in the internal market.

• Setting of the standards in the field of insurance and occupational pension supervision. 

• Monitoring and assessing market developments in the area of its competences. 

• Collecting of data to assess financial stability and to identify and monitor any systemic 

risk information in the area of its competences.

Additionally to the data collected from insurance undertakings, it is envisaged that EIOPA 

will also, among other items:

• Maintain a central investments database for assisting national supervisory authorities; 

• Provide and maintain a database for some of the standard codes for data harmonization 

(although as part of a step-by-step approach), or 

• Maintain a register of insurance and reinsurance undertakings, authorized in the EU. 

EIOPA’s Solvency II QRTs are to be captured in a format allowing data analysis, and it is 

envisaged that supervisors will use systems capable to process automated tasks based on the 

QRT and other information collected in the eXtensible Business Reporting Language format 
 Page 94 of 130

and stored in electronic databases. EIOPA’s database will comprise information reported by 

undertakings to national supervisors, where data validation occurs, and the information is then 

sent to EIOPA. The tools to analyze captured data will be developed by each supervisor in 

relation to their own database, and by EIOPA in relation to its EU-wide database.

In the U.S. state-based regime the NAIC maintains a centralized database to store the 

electronic statutory financial statements and supplemental filings collected from undertakings 

(unless waived for proportionality issues) as directed by state statute/regulation. The NAIC 

database captures in data table format all quantitative disclosures and some limited qualitative 

disclosures included in the statutory financial statements and supplemental filings and uses 

this data in automated prioritization and analysis tools; the entire statements and supplemental 

filings are also captured in PDF files. NAIC staff performs consistency and reasonableness 

validations on the tabled data. The NAIC database maintains 10 years of annual and quarterly 

data (and the related analytical tools’ results), and is directly accessible by insurance 

supervisors in each state; prior years’ data is rolled off and stored in historical data tables 

which are not directly accessible.

For the state-based regime in the U.S., a project is underway involving NAIC staff whereby a 

Legal Entity Identifier code would be assigned to each undertaking. This involves linking the 

Legal Entity Identifier code to the NAIC company code for each legal entity in the NAIC 

database (undertakings will not have to disclose; the NAIC will have the list in the database 

and do the match on the back end). Also, insurers will provide Legal Entity Identifiers for 

reinsurers and issuers of securities as data elements that will be captured in the statutory 

financial statements. In the EU side, the standard is being discussed and the usage of Legal 

Entity Identifier codes for insurers, reinsurers and securities issuers could be envisaged. 

Topic 4: Analysis of the information

This topic addresses the means by which each of the two regulatory regimes provide for 

various levels of analysis at the solo and group level, across solo undertakings and groups, 

and at the market level.

4.1 Objectives

The objectives include: 

• Monitoring compliance with regulatory requirements; 

• Identifying risks and enabling risk assessments for solo undertakings/groups and the 

market as a whole; 

• Understanding the current financial condition of the solo undertaking/group and its 

future trends, and identifying potentially troubled solo undertakings/groups; 
 Page 95 of 130

• Supporting the update of the risk assessments or profile of the insurer along with 

update of the supervisory plans and considerations of further actions (e.g., meetings, 

contacts with other supervisors, supervisory measures); 

• Analysis of information filed on an ad hoc basis for key transactions (e.g., significant 

acquisitions or outsourcing) or other pre-defined events (e.g., SCR breach); and 

• Identifying and providing publication of overall industry/sector trends and 

developments of concern. 

Key Commonalities 

For each of these objectives both regimes share a high degree of commonality as to the 

overall approach and desired outcomes. However, specifics vary.

4.2 Maturity Level of the Analysis Function 

Key Differences

There also will be some differences relating to the maturity level of the analysis function 

between the two regimes; while the U.S. state-based analysis system has been operational 

and refined over a 15+ year period, there are some aspects of the EU’s analysis system (those 

pertaining to tasks to be performed by EIOPA) that will only be operational when Solvency 

II comes into force, although some specific analysis in relation to financial stability is already 

in place at the EU level. 

4.3 Monitoring Tools and Financial Analysis Procedures

Key Differences

In the EU the Solvency II Directive (Art. 36.3) prescribes that the supervisors shall have in 

place appropriate monitoring tools that enable them to identify deteriorating financial 

conditions in an insurance or reinsurance undertaking and to monitor how that deterioration is 

remedied. While each national supervisory authority will make its own determination as to 

how to comply with that mandate, it is envisaged an increasing convergence of the 

supervisory review process. The analysis at a solo level is performed by the supervisor of the

competent national authority. At the group level, the group supervisor is responsible for the 

analysis, in close cooperation with the supervisors involved in the college of supervisors. 

As a first step on the convergence of the supervisory review process, EIOPA is currently 

developing guidelines on the SRP (“SRP Guidelines”), to identify the manner in which a riskbased, prospective and proportionate approach to supervision is to be achieved within the 
 Page 96 of 130

process, with the objective of achieving the convergence of supervisory processes and 

practices, while ensuring sufficient flexibility for supervisors to be able to appropriately adapt 

their actions on a case-by-case basis, taking into account the specificities of the undertakings 

involved, their own national markets and other supervisory priorities. 

According to these SRP Guidelines under development, the supervisory review process is to 

be conducted in 3 phases: Risk Assessment Framework, Review, and Supervisory Measures. 

In each of these phases a number of steps are defined. Under the Risk Assessment 

Framework, as a first step, it is envisaged that every insurer is subject to a high level 

assessment of the supervisory data reported to the supervisor, whenever regular or ad-hoc 

reporting is made. This high level analysis will lead to the attribution of a four category 

impact assessment and a four category risk assessment, which combined, will constitute the 

outcome of the risk assessment. This outcome will feed into the supervisory plan that 

establishes the need for and scope of the detailed off-site and/or on-site analysis. For the high 

level analysis described above, the frequency is set by the reporting frequency, and is 

expected to be performed on a quarterly basis. Although the process will be most probably 

defined in the future guidelines, the content of the analysis performed, the analysis tools and 

metrics at the different levels is not envisaged to be harmonized through the referred 

guidelines. 

Finally, at the EIOPA level, financial stability analysis of market trends is currently already in 

place, under the remit of the Financial Stability Committee, which leads to the publication of 

a semi-annual financial stability report. This EIOPA task should develop in the coming years, 

especially with the availability of quarterly Financial Stability QRT.

The U.S. state-based regime incorporates common analysis tools and metrics which are 

developed and maintained by the NAIC and accessible for use by all state insurance 

regulators. These tools have been developed, utilized and enhanced over the past 15+ years to 

address ratios (overall, financial position, profitability, cash flow and liquidity, reserve, and 

leverage), scoring systems, trend and concentration reports (including RBC elements), and 

peer review tools. Among these ratios, the Insurance Regulatory Information System Ratios

generate key financial ratio results that review profitability, liquidity, reserves, investments, 

and operations; and these results are public. The larger amount of prioritization and analysis 

tools, however are confidential. An NAIC prioritization tool, the Analyst Team System (ATS) 

was designed to incorporate many of these other tools and include a qualitative review by a 

central group of experienced regulators. In addition to these common NAIC tools, supervisors 

in each state develop their own tools to complement what is provided by the NAIC or to 

address unique needs in their state. 

Similar to the EU, the analysis at a solo level is required to be performed by the supervisor of 

the domiciliary state. However, within the state-based regime in the U.S., non-domiciliary 

regulators often perform high level analyses of insurers writing business in their state, a 

practice that appears similar to what EU regulators participating in a college of supervisors 

would do to review a group. 
 Page 97 of 130

The NAIC’s Financial Analysis Working Group (FAWG), comprised of seasoned and highly 

experienced regulators, performs a separate analysis annually of nationally-significant 

insurers utilizing the various NAIC solvency tools as well as the research of NAIC staff 

supporting the FAWG. As mentioned in the report of TC6, the FAWG operates as a peer 

review mechanism, advising domiciliary states in follow up and regulatory actions. 

In addition to the ATS, the NAIC Accreditation program requires that each state’s financial 

analysis procedures be priority-based (and documented) to ensure that potential problem 

companies are reviewed promptly. Such a prioritization scheme should utilize appropriate 

quantitative and qualitative factors as guidelines to assist in the consistent determination of

priority designations. For states with few domestic insurers, a more simplified prioritization 

system can be considered adequate; states with a larger number of domestic companies would 

be expected to use a prioritization scheme that is more complex and sophisticated. By 

comparison, the EU regime envisions more specific parameters to be used, but leaves it up to 

supervisor discretion to establish the actual prioritization methodology used. Also, the 

NAIC’s Accreditation program establishes guidelines for timeframes within which analysis is 

to be completed. 

Similar to the EU’s guidelines being developed and based on Art. 36 of the Solvency II 

Directive, the NAIC Accreditation standard requires that a state insurance department’s 

financial analysis procedures should ensure that domestic insurers receive an appropriate level 

and depth of review commensurate with their financial strength and position. The level and 

depth of the analysis will depend on the complexity and the financial strength of the insurer 

and the existing or potential issues and problems found during review of the financial 

statements, can be conducted cooperatively with other experts, such as actuaries, where 

necessary or indicated, and with at least one level of supervisory review on each multi-state 

company analysis performed by a supervisor. The quarterly statement assessment requirement 

is similar to the EU regime’s expectation for the supervisor to perform and adequately 

document a high level analytical review for all insurers on a quarterly basis. 

4.4 Documentation 

Key Commonalities 

In both regimes, there are also documentation requirements regarding analysis performed and 

for any regulatory action taken on material adverse findings. The NAIC also maintains a 

Financial Analysis Handbook which utilizes a Level 1 and Level 2 procedure structure. Level 

1 procedures identify initial risks of concern, whereas Level 2 procedures should be 

considered for significant risks identified in Level 1 or for complex insurer operations that 

warrant such use. The Accreditation guidance indicates states may wish to use these 

checklists and tailor them to the needs of the analyst and the insurer under review. 

As part of risk-focused financial surveillance in the state-based regime in the U.S., an Insurer 

Profile Summary is created and maintained as a living document updated after all regulatory 
 Page 98 of 130

interaction with the insurer - prioritization, analysis, exam, corrective action - for each 

domestic insurer which highlights specific insurer information and concerns. This Insurer 

Profile Summary may also include information from on-site financial examinations such as 

any corporate governance or prospective risk areas of concern. The domiciliary regulator can 

share the Insurer Profile Summary with other regulators where the insurer is licensed. In 

addition, a Supervisory Plan is created for each insurer which outlines any necessary action or 

follow-up of important issues and indicates future actions such as targeted or full scope onsite examinations. The Insurer Profile Summary and the Supervisory Plan appear to be similar 

to the outcome of the Risk Assessment Framework and the supervisory plan established 

within the SRP Guidelines in the EU. 

Topic 5: Public Disclosure Requirements 

This topic aims at describing the public disclosure requirements in both regimes, especially in 

terms of contents, treatment of specific events and means of availability.

Key Commonalities 

Both regimes require the disclosure to the public by solo undertakings of information, 

although not in the same level of detail as that received by supervisors.

There are also in both regimes extensive additional disclosure requirements for listed 

companies.

In addition, there are commonalities in the fact that, in both regimes, not all the solvency 

information is publicly disclosed, with more detailed and confidential information remaining 

reserved to the supervisor only. 

Key Differences

In the EU, public disclosure concerns the SFCR (which encompasses both narrative 

information and a limited set of QRT), whereas in the state-based regime in the U.S., it 

concerns financial statements, the MD&A and actuarial opinion. However, the following 

elements are not to be disclosed: RBC and ORSA filings, actuarial report/memorandum in the 

state-based regime in the U.S.; RSR and most QRT and ORSA report in the EU. 

Concerning groups, the requirements on the EU side are similar to that for solo undertakings, 

whereas, on the U.S. side, there is no extensive requirement other than SEC filings and some 

other specific examples (e.g., group organization chart and listing of non-routine affiliated 

transactions).

In terms of content publically disclosed, the SFCR in the EU includes quite detailed 

information on capital requirements and management, whereas the RBC filings in the statebased regime in the U.S. remain private (although the Authorized Control Level RBC results 

are publicly disclosed in the Annual Statement). 
 Page 99 of 130

Another difference is that the EU regime requires SCR and MCR breaches to be disclosed 

after a given period of time without recovery (2 months if no realistic recovery plan is 

submitted, 6 months otherwise), along with any other major developments. In the U.S. statebased regime, specific ad hoc disclosures are limited to administrative and legal proceedings.

In terms of means of availability, the filings in the U.S. state-based regime are made available 

by the NAIC (directly as well as through data aggregation vendors) or through the states, 

whereas in the EU, it is the undertaking or the group which is responsible for making the 

SFCR available to the public, on in its website and in print upon request. 
 Page 100 of 130

6. Supervisory Peer Reviews

Overview

This report provides an overview of the peer review processes operational in the European 

Union (EU) and under the state-based insurance regulatory regime in the U.S. The report 

focuses on the practices of EIOPA and the NAIC, referring to the activities of other 

institutions (e.g., EC), where relevant. The NAIC Accreditation Program and the EIOPA Peer 

Review Process constitute the main focus of the report (sections 1- 4). The report is structured 

to address issues relevant to the scope, process and outcomes of the Accreditation Program 

and the EIOPA Review Process. Where other peer review-type processes are considered 

relevant, they are separately referred to in the report (section 5). 

Topic 1: Scope

1.1 Development Process 

Key Commonalities

Review programs are developed by representatives of states/competent authorities that are the 

subject of the review. Non-regulators may provide input to the development of the program. 

In the state-based regime in the U.S., interested parties (e.g., industry, consumer 

representatives, trade groups) can provide input at the public portion of Financial Regulation 

Standards and Accreditation (F) Committee (FRSAC) meetings regarding any changes to the 

program or standards. For the EU, EIOPA Stakeholder Groups (comprised of representatives 

from industry, users of financial services, consumers, academia and trade unions) can provide 

input to the development of the work program. 

Key Differences

State-based regime in the U.S.: The Accreditation Program was originally developed in 

1989 as a collective effort between the state commissioners in the U.S. The 

standards/guidelines continue to evolve as the insurance industry changes and as financial 

solvency regulatory practices continue to improve and become more robust. Accreditation 

standards, guidance and any other accreditation-related decisions are made by the Financial 

Regulation Standards and Accreditation (F) Committee, which is comprised of 13 insurance 

commissioners. The Part A standards constitute minimum standards which assure a high level 

of regulatory authority and capability. An accredited state’s laws/regulations must be 

substantially similar to the significant elements that have been identified as the key provisions 

of the model law or regulation. Although the state’s laws and regulation do not have to be met 

exactly, they do have to be similar in force and no less effective than the model language. 

Although the Part A standards are technically non-legally binding, combined with the 

sanctions for non-accredited status (other states will not rely on examination reports by a non-
 Page 101 of 130

accredited state) they have resulted in standards that are effectively obligatory. Since the 

inception of the Accreditation Program, all 50 states have adopted numerous laws/regulations 

that are based on NAIC-adopted models or templates. 

EU: Topics for each peer review are proposed by the EIOPA Review Panel (the working 

group responsible for EIOPA’s peer review activity, comprised of representatives from up to 

30 EU/EEA competent authorities) and approved by the EIOPA Board of Supervisors 

(including the Heads of the 27 EU competent authorities with voting rights). Any EU measure 

within the scope of the EIOPA Regulation (Regulation (EU) No 1094/2010) can form the 

basis of a peer review. Hence, peer reviews cover measures which are legally binding (e.g.,

Regulations/Directives) and non-legally binding (e.g., guidelines/recommendations). Where 

the measures subject to assessment have a legal basis, the legislative power of the EU (as 

specified in the EU Treaty57 provisions) does not rest with EIOPA, but is spread amongst the 

EU institutions (the key players being the Council of the European Union, the European 

Parliament and the Commission). EIOPA has the legal power to create certain non-legally 

binding measures, specifically guidelines and recommendations. The 

guidelines/recommendations require the approval of the EIOPA Board of Supervisors. See 

paragraph 2.4 below. Peer reviews can also focus on analyzing supervisory practices not 

prescribed in EU measures. The topics selected reflect significant supervisory, regulatory 

and/or legal issues which fall within the legal competence of EIOPA (see paragraph 1.2 

below). The process allows EIOPA to respond to “live” issues (including regulatory and 

supervisory developments). 

1.2 Scope 

Key Commonalities

For both regimes, prudential issues fall within the scope of the review processes.

Key Differences

State-based regime in the U.S.: The accreditation standards deal with financial solvency 

regulation, but do not include market conduct issues. Specifically, the areas of financial 

solvency regulation that are included in the Accreditation Program are all of those areas that 

are fundamental to effective financial solvency regulation: laws/regulations (compliance 

check), financial analysis (offsite monitoring), financial examinations (onsite monitoring), 

information sharing and procedures for troubled companies. 

EU: The peer review process covers prudential and market conduct issues (falling within the 

legal competence of EIOPA58 as stated in the EIOPA Regulation), relating to insurance 

 

57 All EU legislation must be based on a specific Treaty article set out in the Treaty on European Union and the Treaty on the 

Functioning of the European Union.

58 EIOPA Regulation – Art. 1 
 Page 102 of 130

undertakings, reinsurance undertakings, institutions for occupational retirement provision, 

insurance intermediaries and financial conglomerates.

1.3 Objectives 

Key Differences

The objectives of the processes are: 

State-based regime in the U.S.: to assess whether state insurance departments are meeting 

minimum, baseline standards (that are rigorous in nature) in regulating the financial solvency 

of multi-state insurance companies; 

EU: to achieve high quality supervisory outcomes, convergence in supervisory practices and 

the identification of best practices59. 

1.4 Coverage 

Key Differences

State-based regime in the U.S.: The Accreditation Program includes a standardized scope 

with formal topical standards that are continually updated as necessary. Reviews of the 

standards are performed on a rotational basis. The areas forming the subject of the review 

generally do not change. Additional standards may be added for relevant changes in the 

insurance industry and/or the regulatory environment. The Program and related process have 

resulted in standards that are effectively obligatory. 

Although the Accreditation Program focuses on multi-state insurance companies, the 

accreditation standards (i.e., topics) are not selected because it solely applies to multi-state 

companies. Rather, the vast majority of the standards apply equally to multi-state and single 

state companies, and the states apply the resulting processes equally to both types of 

companies. 

EU: Peer reviews are thematic in nature, examining subjects/issues which fall within the legal 

remit of EIOPA. The topics forming the subject of the reviews change, but the EU measures, 

which are rigorous in nature, on which they may be based (e.g., Regulations, Directives and 

guidelines), will not generally change, but can be updated where necessary. Any significant 

issues identified will be revisited during the follow-up process (aspects may also be 

considered as part of a subsequent review). 

The EIOPA Regulation specifies a non-exhaustive list of issues that should, as a minimum, 

form part of a peer review - e.g., adequacy of resources and governance arrangements; the 

 

59 EIOPA Regulation – Rec. 40 and Art. 30.
 Page 103 of 130

degree of convergence reached in the application of EU law and in supervisory practice60. 

Peer reviews extend beyond consideration of these minimum requirements. Topics selected 

for peer review are not restricted to issues relevant to multi-state insurance companies. 

1.5 Participation 

Key Differences

State-based regime in the U.S.: Participation in the NAIC accreditation process is voluntary. 

In order to maintain accredited status, a state must participate in full and interim annual 

reviews. Although the program is voluntary, there is a high degree of participation in the 

program. In fact, currently all 50 states, the District of Columbia and Puerto Rico are 

accredited. The vast majority of states have been accredited since the late 1990s. Because of 

the high degree of participation and peer pressure to be accredited, the Program and its related 

standards are effectively obligatory.

EU: The EIOPA Regulation requires EIOPA to periodically conduct peer reviews61. There is 

no express legislative requirement on competent authorities to participate in peer reviews. 

However, the additional obligations imposed upon competent authorities under the EIOPA 

Regulation (e.g., the requirement to provide EIOPA with all information - to which they 

have legal access - necessary to carry out the duties assigned to it by the EIOPA Regulation62

(EIOPA’s duties include peer review)), operate to support EIOPA’s work in this area. All 

competent authorities continue to participate, voluntarily, in peer review exercises. 

Topic 2: Process

2.1 Personnel 

Key Commonalities

For both regimes, persons responsible for coordination of the process, ensure relevant 

procedures, etc. are followed.

Key Differences

State-based regime in the U.S.: NAIC staff responsible for coordination are involved in 

certain aspects of the review, but do not have a “vote” on a state’s accredited status. 

Independent experts are also involved in certain aspects, some of whom are former regulators 

(past peers). NAIC staff have sole responsibility of performing the pre-accreditation review 

process and the review of the interim annual review. 

 

60 ibid., Art. 30(2)(a)-(d) 61 Ibid., Art. 30(1) 62 ibid., Art. 35
 Page 104 of 130

EU: Coordinators (EIOPA staff) support (i.e. do not undertake) peer reviews, through the 

fulfillment of project management, coordination, observer and advisory functions. EIOPA 

members are considered “peers” for the purposes of the exercise.

2.2 Legal Counsel/Advice 

Key Commonalities

For both regimes a legal counsel is involved on a consultative basis. 

Key Differences

State-based regime in the U.S.: NAIC Legal Division has a standing role in relation to the 

review of Part A of the Program (accredited states must have laws/regulations that are 

substantially similar to the 19 standards).

EU: EU legislation (e.g., Regulations/Directives) is binding. The EC is responsible for 

monitoring the transposition and implementation of Directives and the application of EU law. 

See paragraph 2.4. 

2.3 Assessment of Supervisory Practices 

Key Commonalities

State-based regime in the U.S.: The accreditation process includes a review of certain 

supervisory practices, including looking at actual cases to ensure proper procedures are being 

followed. 

EU: The review includes the examination of actual supervisory practices – through, for 

example, examining actual cases and supporting documentation (e.g., case files, internal 

procedures); and cross checking the answers provided by one competent authority with those 

of another. This information will be requested of all competent authorities irrespective of 

whether the review activity is on-site or off-site.

Key Differences

State-based regime in the U.S.: The purpose of Part B is to assess whether a state insurance 

department is complying with baseline regulatory practices and procedures required to 

supplement and support enforcement of the state’s financial solvency laws and regulations. 

These standards deal with all aspects of financial solvency regulation, including topics such as 

staffing, prioritization, material adverse finding, procedures for troubled companies, 

communication, supervisory review, appropriate procedure and sufficient documentation. In 

the Part B section alone of the Accreditation Standards there are 20 standards and 100 

guidelines. Compliance with these standards is assessed for every state on an annual basis.
 Page 105 of 130

EU: Reviews extend beyond consideration of baseline practices, to examine (in respect of the 

areas subject to review) all aspects of the competent authorities’ practices and any relevant 

national measures. For example, where the EU measures which form the basis of the reviews 

are intended to achieve minimum levels of harmonization, the review will consider 

supervisory practices and national measures which exceed the minimum thresholds. The key 

objective is to gain an understanding of an authority’s supervisory approach and the outcomes 

achieved, as well as to foster consistency within the network of financial regulators63. The 

same approach will be adopted in respect of maximum harmonization measures.

2.4 Review of National Measures/Compliance Check

Key Commonalities

A review of national measures (e.g., laws, regulations, policies, etc.) takes place both in the 

U.S. and in the EU. 

Key Differences

State-based regime in the U.S.: Part A of the accreditation standards focuses on a 

compliance check of items such as laws and regulations. In this section there are 19 different 

standards and the NAIC Legal Division reviews for compliance with 136 different significant 

elements. Laws and regulations are reviewed on an annual basis. In addition, during full onsite reviews, the accreditation review teams ensure that the state is properly administering key 

laws and regulations. 

EU: The application of legal and non-legal measures may be subject to peer review. 

Competent authorities are required to provide details of national measures (e.g., legislation, 

procedures, policies), which demonstrate how the competent authority would act in respect of 

the issues subject to review. The EC undertakes transposition/implementation checks 

(directives) and publishes respective transposition tables where required. The EC also 

monitors the application of EU legislation (including Regulations). Where a Member State 

fails to comply with EU law, the EC has powers (“action for non-compliance”) to try to bring 

the infringement to an end. The EC can initiate infringement proceedings against Member 

States in the Court of Justice of the EU where possible violations are identified. EIOPA also 

has the legal power to investigate alleged breaches of EU law64. Furthermore, EIOPA has the 

power to adopt guidelines and recommendations which are treated by competent authorities 

on a “comply or explain” basis. EIOPA monitors compliance with such measures65. On 

request66, or at its own initiative, EIOPA may also conduct an inquiry in order to assess 

potential threats to the stability of the financial system and make appropriate 

recommendations for action to the competent authorities concerned. 

 

63 Ibid., recital 40 64 EIOPA Regulation –Art. 17 65 Ibid., Art. 16 66 Ibid., Art. 22 (4)
 Page 106 of 130

2.5 Reviewers 

Key Commonalities

For both regimes, those responsible for conducting reviews are experts in insurance 

regulation, and appropriate steps are taken in order to avoid possible conflicts of interest. 

Key Differences

State-based regime in the U.S.: Full reviews are undertaken by the Accreditation Team, 

which is comprised of persons approved to undertake the review. These “approved persons” 

cannot be employed in a state insurance department. They also file annual conflict of interest 

statement to ensure they do not perform a review of a state in which they have a conflict. The 

NAIC Accreditation Staff (involved in the coordination, pre-accreditation review and interim 

annual review) and Legal Counsel (involved in the review of Part A of the Program) are not 

approved (other than through the NAIC hiring process), but the restrictions on employment 

are identical. 

EU: The reviews are undertaken by representatives from competent authorities (“peers”) who 

are experts in the areas subject to review. These experts will be involved in all aspects of the 

review and are required to take all necessary steps to avoid conflicts of interest (e.g., members 

of the Review Panel and the reviewers must not be involved in the review carried out in 

respect of their own competent authority). 

2.6 Disclosure 

Key Commonalities

Requirements regarding the disclosure of information apply in respect of those performing the

peer reviews in both regimes. 

Key Differences

State-based regime in the U.S.: Accreditation reviewers are required to annually sign 

confidentiality agreements and individual contracts that include confidentiality clauses for 

each review performed. 

EU: Reviewers are bound by an obligation of professional secrecy, as outlined in the 

(re)insurance directives67. The directives contain detailed provisions on professional secrecy, 

central to which is the basic principle that persons working or who have worked for 

 

67 Directives 2005/68/EC (Art. 24-30), 2002/83/EC (Art. 16) and 92/47/EEC (Art. 16). Identical professional secrecy 

provisions are included in the Solvency II Directive. EIOPA’s Rules on Confidentiality (EIOPA-MB-11-008) should also be 

noted in this context.
 Page 107 of 130

competent authorities, are bound by an ongoing obligation of professional secrecy. The 

EIOPA Regulation applies the same professional secrecy obligations to EIOPA and its 

employees that apply to competent authorities in the EU.

2.7 Review Process 

Key Commonalities

Review processes have been developed and are in use. The state-based regime in the U.S. has 

developed work plans and various accreditation review processes, while the EU has 

developed the Peer Review Methodology, Guidance for Reviewers and various review/report 

templates.

Common elements of both of the processes are:

• Review of relevant documents, including self-assessment questionnaires and files 

(responsibility for total number of files reviewed rests with team leader).

• Advance notification to state/competent authority of data needs. 

• Questions posed to state/competent authority where issues are identified. 

• Meetings with relevant persons within the state/competent authority. 

• Meetings of review teams.

• Documentation of outcomes (aspects of which are reported to a central decisionmaking group and the relevant state/competent authority).

2.8 Onsite/Offsite Work

Key Commonalities

Both regimes have developed standard processes which involve elements of on-site/off-site 

work. 

Key Differences

State-based regime in the U.S.: The review involves the use of on-site and off-site tools in 

respect of each state. Full on-site visits typically last 4.5 days, while re-review on-site visits 

last between 2-4.5 days. Both reviews include between three and six team members and one 

NAIC staff member. Off-site preparatory/“wrap up” work for on-site reviews take between 2-

10 hours per state per team member. This amount of time does not include the off-site 

preparatory or wrap-up work of NAIC staff, which is quite significant in relation to the on-site 
Page 108 of 130

review work. The interim annual review (off-site) lasts from 5-12 hours per state. The 

estimates as to the number of people on the team and the number of hours for each review is 

based on over 20 years of experience of performing these reviews and the efficiencies gained 

in performing this process. 

EU: When considering whether to conduct an on-site visit, account is taken of the nonexhaustive criteria as outlined in the Peer Review Methodology (i.e. the scale of potential 

market impact; extent of the misapplication of provisions; inconsistency or lack of clarity of 

questionnaire responses; failure to provide information when requested). The proposal to 

undertake an on-site visit will, following discussion within the relevant workstream, be 

subject to the agreement of the Review Panel. 

The level of onsite activity differs depending upon the nature of the issues identified during 

the review. For example, 17% of competent authorities were visited during CEIOPS’ first 

peer review in 2010, while in respect of the 3 exercises undertaken in 2012, 27% will be 

visited as part of one review and approximately 16% in relation to the others. On-site work 

will be undertaken by review teams comprised of a minimum of 3 reviewers and supported by 

an EIOPA coordinator. On-site visits typically last 2 days. The amount of time spent on-site 

depends on the specific circumstances of the competent authority. A minimum of 2 reviewers 

will be assigned to each competent authority for off-site work. Approximately 8 to 20 

working days would typically be spent by each reviewer undertaking off-site work in respect 

of each competent authority – however, this could be longer, depending on the scope of the 

review. This estimate does not include the significant time spent by the EC undertaking 

transposition/implementation checks, etc. Decisions relating to how the reviews are staffed 

and the time allocated to each element of the review, are based upon the EU’s previous 

experience in this area.

68 

2.9 Information

Key Commonalities 

Information is obtained from states/competent authorities, including via self-assessment 

questionnaires (including supporting documentation) and through onsite visits, but can be 

supplemented/verified by other information to which the NAIC/EIOPA has access (e.g., data 

collected from insurance companies/information generated from work undertaken within 

EIOPA).69

68 The peer review process allows for improvements in the application of EU measures and supervisory practices to be 

monitored and measured.

69 When conducting peer reviews, EIOPA is under a legal obligation to take into account existing information and 

evaluations with regard to the competent authority concerned (EIOPA Regulation –Art. 30(1))
 Page 109 of 130

2.10 Frequency of Reviews 

Key Differences

State-based regime in the U.S.: Each state’s insurance department is reviewed on a periodic

basis to assess compliance with the standards (full onsite accreditation reviews take place 

once every 5 years; interim off-site reviews take place annually).

EU: A maximum of 3 reviews per year may be undertaken simultaneously in respect of those 

competent authorities for which the subject of the review is relevant (not all competent 

authorities regulate the pensions and insurance sectors). Each review typically involves 

reviewing the activities of up to 30 competent authorities. 

2.11 Grading/Scoring Systems 

Key Commonalities

Grading/scoring systems have been developed for use during reviews both in the U.S. and the 

EU.

Key Differences

State-based regime in the U.S.: A scoring system is adopted which forms the basis of the 

recommendation regarding the state’s accreditation. Part A of the program is scored on 

“pass/fail” basis. A numerical system (0 to 5) is applied in respect of Part B. Part B scores are 

for internal use only (i.e. NAIC staff/review team). Parts C and D are not scored but are 

assessed during the on-site visit. 

EU: EIOPA has adopted a grading system (fully applied, partially applied, not applied) in 

order to facilitate the analysis and formal classification of the application of the measures 

subject to review. The grading system will only be applied in respect of those provisions 

which competent authorities are “required” to apply. The grades/benchmarking are available 

to the competent authorities, Review Panel and the EIOPA Board of Supervisors. Under 

CEIOPS, they were also published; under EIOPA Regulation this needs the agreement of the 

competent authority subject to peer review (see also 3.7). In respect of those 

measures/practices which are not benchmarked, they will be considered as part of the on-site 

visit/off-site review work.

Topic 3: Outcomes

3.1 Decision Makers 

Key Commonalities

Outcomes are decided by a central decision-making group, comprised of representatives from 

states/EU competent authorities.
 Page 110 of 130

Key Differences

State-based regime in the U.S.: Decisions are taken by the Financial Regulation Standards 

and Accreditation (F) Committee, which is comprised of 13 insurance commissioners. 

Significant committee decisions regarding the program processes and standards must be 

approved by a vote of the full NAIC membership (total of 56 jurisdictions.) 

EU: Preliminary decisions taken by the workstream responsible for conducting the review, 

are, once discussed and approved by the Review Panel (comprised of representatives from up 

to 30 EU/EEA competent authorities), presented to the EIOPA Board of Supervisors

(including the Heads of the 27 EU competent authorities with voting rights) for approval. All 

decisions regarding the peer review program, processes and any EU measures adopted by 

EIOPA which form the basis of peer review, are taken by the EIOPA Board of Supervisors. 

3.2 Documentation of Outcome 

Key Commonalities

Outcomes are recorded and communicated by the EU and U.S. in reports which provide: an 

overview of the exercise; conclusions; recommendations; and action points. The draft reports 

are shared with the relevant state/competent authority which is afforded the opportunity to 

comment/discuss the issues raised. The state/competent authority must provide a written 

response to the final report. 

3.3 Best Practices

Key Commonalities

Best Practices are identified and communicated widely in both regimes. 

Key Differences

State-based regime in the U.S.: The reviewers identify the best practices and can notify the 

NAIC Senior Accreditation Manager for possible inclusion in the listing of best practices. 

NAIC staff or accreditation team may suggest that an item be included as a best practice in the 

NAIC Manual. State insurance departments may also suggest that one of their practices be 

considered as a best practice. The NAIC Senior Accreditation Manager has final approval on 

whether the item is considered a best practice. The best practices are communicated to the 

state supervisory departments through the NAIC Manual, but not made public. Although, 

when a best practice is identified, it could likely end up as additional language in the NAIC 

analysis, examination or troubled company handbooks and would become public when so 
 Page 111 of 130

proposed; but it may not be disclosed that the source of the idea came from an accreditation 

review. 

EU: Best practices are identified by the reviewers, discussed by the Review Panel and other 

relevant working groups within EIOPA and once agreed by the Review Panel, proposed to the 

EIOPA Board of Supervisors for approval. EIOPA is legally required to make the best 

practices that can be identified from peer reviews publicly available70. Best practices are 

published on the EIOPA website (see paragraph 3.7 below). 

3.4 Addresses 

Key Commonalities

The outcomes are directed to the subject of the review (i.e. state/competent authority). 

Key Differences

State-based regime in the U.S.: Outcomes become known to other states through FRSAC

activities and NAIC National Meetings. Further, if a significant issue is identified on a review 

related to NAIC handbooks or guidance, FRSAC can make a referral to the appropriate group 

with suggested revisions. 

EU: Outcomes may also be directed to other parties. Where, for example, EU measures which 

form the basis of the review are considered to require revision, the matter can be referred to 

the EC and/or EIOPA. 

3.5 Nature/Impact of Outcome 

Key Commonalities

The outcomes of the processes in both regimes are not binding, although peer pressure and/or 

follow-up mechanisms may enhance compliance and lead to improvements in performance. 

Key Differences

State-based regime in the U.S.: Outcomes are not binding per se, but a state could lose its 

accreditation based on noncompliance with the accreditation standards. Because of the high 

degree of participation and peer pressure to be accredited, the Program and its related 

standards are effectively obligatory.

EU: On the basis of a peer review, in addition to identifying and publishing best practices, 

EIOPA may issue guidelines and recommendations. Guidelines and recommendations are not 

 

70 ibid., Art. 30(4)
 Page 112 of 130

legally binding, but subject to the “comply or explain” regime (see paragraph 2.4 above). 

EIOPA shall also take into account the outcome of peer reviews when developing draft 

Regulatory Technical or Implementing Technical Standards in accordance with articles 10-15 

of the EIOPA Regulation71. 

3.6 Challenge/Appeal Process

Key Commonalities

It is possible to challenge/appeal the outcomes of the review process. In both regimes, 

decisions are taken by simple majority of representatives of the state/competent authority 

(state-based regime in the U.S.: 3 members of the Appeal Hearing Panel; EU: Review Panel; 

Board of Supervisors). Further, the appealing authority can be supported by, or request the 

participation of, relevant experts (Legal Counsel; members of the review team) in the 

appeal/challenge process. The burden is on the relevant state/competent authority to justify 

the reversal of/changes to, the initial decision. The appeal/challenge process can result in the 

affirmation, reversal or modification of the decisions/conclusions of the FRSAC/Review 

Panel as they relate to the particular state/competent authority. 

3.7 Publication 

Key Commonalities

Both regimes publish general information regarding the review process alongside best 

practices.

Key Differences

State-based regime in the U.S.: Publication of the Accreditation Program and its processes 

and a listing of accredited states are publicly available. Accreditation reports are confidential.

EU: The EIOPA Regulation provides that the competent authority that is the subject of the 

review must consent to the publication of the results of the peer review72 (other than best 

practices – which will always be published). Historically, the peer review process involved 

publication (via the CEIOPS website) of competent authorities’ self-assessment 

questionnaires; an interim report which (on a named basis) provided a statistical overview of 

compliance levels (including grade scales); and the final report on the exercise, which 

outlined specific issues/recommendations on a named basis. 

 

71 Ibid., Art. 30(3) 72 Ibid., Art. 30(4)
 Page 113 of 130

Topic 4: Follow-Up

Key Commonalities

The state/competent authority must provide a progress report/update on actions taken in 

response to the issues identified/recommendations resulting from the review. Such updates 

will typically be provided on an annual basis, but depending on the significance of the 

relevant issues, could be more frequent and may vary in form. 

Topic 5: Additional Review-Type Projects/Processes in Each Regime

There are several processes, in addition to the NAIC Accreditation Program, which the statebased regulatory regime in the U.S. classifies as peer review activities (outlined below). 

Where EU processes exist, although not technically classified by the EU as peer review 

activities, but which share some of the characteristics of the processes in the state-based 

regime in the U.S., these have been noted. The EU has, however, confined the description of 

the EU activities to the work undertaken by EIOPA which bears some correlation to the 

activities presented by the U.S. and has not reflected in the report the workstreams undertaken 

by EIOPA more generally.

The following peer review-type projects/processes are in addition to the NAIC Accreditation 

Process: 

NAIC Exam Peer Review Project

The NAIC’s Exam Peer Review Project provides an opportunity for participating regulators in 

learning from each other and developing best practices in conducting risk focused 

examinations. Through each quarterly session, a group of experienced regulators from various 

Member States come together to review examination files submitted by other states and 

provide feedback to those states regarding the effectiveness of the work performed and 

suggestions for improvement. Feedback is provided through a formal letter that is issued to 

each state’s chief regulator overseeing the on-site examination process. General results of the 

peer review findings are incorporated into the NAIC’s process to update existing guidance for 

use in conducting examinations nationwide. 

Financial Analyst Peer Review Process

FAWG was formed in 1989 and is a regulator-only group that is comprised of state insurance 

department solvency experts from sixteen states. Individual members of the Working Group 

are chosen by their skill sets and regulatory solvency experience. The group is charged with: 
 Page 114 of 130

• Analyzing nationally significant insurers and groups that exhibit characteristics of 

trending toward or being financially troubled and determine if appropriate action is 

being taken.

• Interacting with domiciliary regulators and lead states to assist and advise as to what 

might be the most appropriate regulatory strategies, methods and action(s). 

• Support, encourage, promote and coordinate multi-state efforts in addressing solvency 

problems, including identifying adverse industry trends, including coordination and 

consultation with the International Association of Insurance Supervisors Supervisory 

Forum. 

• Increase information-sharing and coordination between state regulators and federal 

authorities, including through representation of state regulators in national bodies with 

responsibilities for system-wide oversight. 

• Review and update to the NAIC Troubled Insurance Company Handbook 

This peer review process has become a fundamental and essential part of the NAIC Solvency 

Framework. The creation of the FAWG emphasized the importance of the responsibility of 

insurance regulators to discover and engage in the handling of troubled insurance company 

situations. FAWG conducts its peer review process quarterly. 

The following reflects some additional related EU Workstreams/Processes: 

Review Forums

As part of the EU review process, review teams can hold “review forums” which bring 

together several competent authorities in order to examine in greater detail (through open 

discussion, review of documentation, presentations, etc.) specific practices that have been 

identified during the review. The reviewers will use the information they acquire during the 

forum to inform the outcomes of the review process both in relation to the competent 

authorities participating in the forum and more generally. The EU process relating to the 

outcomes of the review (section 3 above) is also relevant in this context.

Selective EIOPA workstreams (illustrative of review-related activities)

Various EIOPA working groups comprised of relevant experts from competent authorities 

(including the Financial Stability Committee; Internal Monitoring Group; Task Force on 

Crisis Management; and the Colleges Team), are charged with:

• Analyzing the position of European insurers, based on, for example: (i) quarterly data 

from the 30 largest insurance groups; (ii) the outcome of EU wide stress tests 
 Page 115 of 130

(performed to assess the resilience of financial institutions, in particular, the systemic 

risk posed by financial institutions to adverse developments); and (iii) undertaking 

specific information regularly presented by the EIOPA Board of Supervisors 

• Identifying, assessing and monitoring risks, including through the development (in 

conjunction with national competent authorities), of a Risk Dashboard, in order to 

examine the main risks and vulnerabilities faced by insurers. 

• Assessing (during onsite visits) (i) the ability of competent authorities to conduct 

financial stability analysis on a set of indicators; and (ii) how issues relating to 

significant national insurance undertakings are being addressed. 

• Providing regular feedback to the EIOPA Board of Supervisors on insurance sector 

and financial market analysis, and individual competent authorities (as appropriate), in 

order to inform supervisory planning (including the presentation of policy options and 

proposals for supervisory action). 

• Facilitating voluntary, coordinated action by competent authorities, including where 

adverse developments may seriously jeopardize the orderly functioning and integrity 

of financial markets or the stability of the financial system in the EU.

• Contributing to EU and international policy developments, including those relating to: 

- crisis pre-emption/prevention/management; and recovery/resolution for insurers. 

• Operating as a forum for competent authorities to: exchange information; discuss 

emerging issues (including risks); promote supervisory convergence and 

identify/develop good supervisory practices (including through the development of a 

Supervisory Handbook73 and EIOPA’s participation in colleges of supervisors74).

The activities described above constitute important examples of the review work undertaken 

by EIOPA (at a macro and micro level) of the EU insurance sector, that have facilitated 

EIOPA’s ability to fulfill its legal powers including those in respect of:- financial stability; 

crisis prevention, management and resolution; emergency situations; systemic risks, colleges 

of supervisors; and general coordination between competent authorities75. 

 

73 The Supervisory Handbook will be a ‘good practices’ document, providing information on how to carry out supervisory 

activities under the Solvency II Directive. 74EIOPA Regulation, Art. 8(1)(i) and 21 75 Relevant articles in the EIOPA Regulation include Art. 9, 18, 21, 22(4), 24-25, 27 and 31
 Page 116 of 130

7. Independent Third Party Review and Supervisory On-Site Inspections

Executive summary: TC7 covers significantly different areas of external scrutiny, internal 

controls and supervisory inspections within the supervisory regime. Specifically, this report 

covers three key topics, independent audits, actuarial reports and on-site examinations. With 

the exception of the independent audit topic, the front sections of this TC7 report compare 

current/implemented policies and procedures under the state-based insurance regulatory 

regime in the U.S. with anticipated EU policies and procedures. 

In addition, and with regard to the supervisory regime in the EU, each topic has been 

reviewed from the perspective of different time periods, as follows: 

• When Solvency II will be fully implemented, based on published directives and 

guidance that describe what will be in place at that time. This aspect of TC7’s review 

was limited in part, e.g., because the EU’s draft SRP Guideline (for further 

information, please refer to TC5, 4.3) is not yet publicly available and was thus not 

available for inspection by TC7 members in the U.S. either. 

• Current practices, as determined from a survey of a selected EU Member States and as 

described in the last section of this report. 

In the area of audits, the two regimes are largely the same and can be compared easily. The 

main difference lays in the Solvency II requirement of an internal audit function, which is a 

common practice and a SEC-filer requirement in the U.S.

For the topic of on-site examinations, the two regimes are conceptually the same – providing 

authority for supervisors to conduct examinations on the solvency and financial condition of 

insurers to ensure policyholder protection using a risk-focused examination approach. 

However, key differences exist within the application of the regimes. These differences 

include state insurance regulatory requirements in the U.S. that prescribe the frequency of 

examinations, a process for completing risk-focused exams, example tests of controls and 

examination procedures to address specific risks and assertions, training and certification 

programs for examiners, minimum examination report components and activities to ensure 

consistency between states, which are not currently envisaged in the EU under Solvency II. 

For the area of actuarial reports, the two regimes mandate an established actuarial function, 

and specify requirements for those that complete that function. In the U.S., state insurance 

regulatory requirements include adherence to professional standards mandated by a 

professional actuarial association, whereas the EU does not require this membership. Also, 

although both regimes require actuarial reports, the prescribed minimum content and 

distribution of reports are different. In the U.S., actuaries are required by state insurance 

regulations to release a public opinion, along with other reports that are restricted to the 

company and supervisors. In the EU, there is no public opinion, but internal reports can be 

accessed by supervisors.
 Page 117 of 130

Topic 1: Independent audit 

This topic covers the following: (a) Requirement and nature of external audit of statutory 

financial statements, and (b) regulation on external audit, including (i) professional 

requirements for an auditor, (ii) publication and scope of an audit report, (iii) auditing 

standards, and (iv) internal audit functions. 

Key Commonalities: 

Both regimes have Directives/Regulations in place that require an annual external audit of the 

statutory financial statements of insurance undertakings. For the EU that requirement stems 

from Directive 91/674/EEC. 

Both regimes have Directives/Regulations in place that specify the individuals who can 

perform the annual independent audit. The EU requirements are stated in Directive 

2006/43/EEC. The requirements ensure that the audit is conducted by professionals that under 

both regimes undergo professional examinations and on-going education. Under both regimes 

auditors have to comply with comparable extensive educational qualification and professional 

ethics requirements. Further, the EU regulation forces the Member States to introduce quality 

assurance regimes to enable external scrutiny on the work of the licensed auditors. Similarly, 

professional practice requirements for auditors in the U.S. require them to have quality 

assurance regimes in place. Auditors of SEC filers are also required to register with the Public 

Company Accounting Oversight Board, which introduces further regulation and oversight on 

the auditors of public companies. This can also be seen as comparable with the required 

system of public oversight for statutory auditors and audit firms within the EU. The following 

identifies the specific individual requirements under both regimes:

• U.S.: Certified Public Accountant that has sufficient qualification and experience in 

auditing insurance companies on a statutory accounting basis. 

• EU: Person authorized, according to its qualifications, by national law to audit 

accounts. 

Both the regimes have Directives/Regulations in place that specify the scope of the audit. The 

relevant EU provisions are set out in Directive 91/674/EEC. Items included in the audit are: 

the financial position of the insurer, the balance sheet, the profit and loss statement and the 

corresponding notes, which provide explanations and additional information on the items of 

the balance sheet and income statement. The audit also includes a cash flow statement, 

changes in equity and the distributable surplus for the reporting period. Both EU insurers and 

SEC filers publish more extensive financial information, such as a management commentary 

or a “MD&A”, which is also reviewed by their auditor. (In the U.S. all statutory filers include 

an MD&A within their statutory financial statements; however, it is not a required audit 

element unless the company is an SEC filer.) 
 Page 118 of 130

Under both regimes the financial reports of insurers, together with the corresponding audit 

reports and the audit opinions, are filed with a supervisory authority and become public 

documents. The audit reports in both regimes have the same objective, comparable scope and 

structure. In addition, according to both regimes, the auditors have to promptly report any 

facts which are likely to have a material effect on the insurer’s financial situation. This also 

covers, for example, misstatements or non-compliance with capital requirements. According 

to both regimes the insurer needs to make all relevant information available to the auditor, the 

audit committee and the supervisor. For the EU those requirements are determined by 

Directive 91/674/EEC. 

The auditing standards used in both regimes are comparable, if not the same; the EU Directive 

2006/43/EC assumes the use of international auditing standards. All EU Member States’ 

authorities have implemented the International Standards on Auditing (ISAs) as issued by the 

International Auditing and Assurance Standards Board. The requirements of the AICPA in the 

U.S. are compliant with those ISAs. 

Insurers in both regimes are required to set up an audit committee or are allowed to delegate 

that function to the Board of Directors. The audit committee, amongst other tasks, monitors 

the financial reporting process, including the corresponding internal controls, the statutory 

audit, the independence of the auditor and looks after the appointment and compensation of 

the auditor. The requirements on the set up, code of conduct, the expertise and knowledge of 

the audit committee members are comparable in both regimes. Audit committees monitor the 

effectiveness of the insurer’s internal controls. The EU Directive 2006/43/EEC, relevant for 

the regulation of audit committees, expands the audit committee function to monitor the 

internal audit function and risk management regimes. 

Key Differences: 

According to Directive 91/674/EEC in the EU all insurers are required to have their annual 

accounts and consolidated accounts audited. In the U.S., audits are not required for insurers 

that are below the threshold of less than 1,000 policyholders or if they have annual premium 

income of less than $1 million. Also in the EU, all insurers are required to have their 

consolidated accounts audited, if applicable. In the U.S., regulatory reporting is on a separatelegal entity basis, and only public filers (filing under the SEC) are required to have their 

consolidated financial statements audited. 

In the EU, the Solvency II Directive (2009/138/EC) requires the establishment and 

maintenance of an internal audit function. Solvency II foresees an independent internal audit 

function to play a vital role within the systems of governance for an insurer (see also TC2 for 

governance). There is no independent internal audit function currently required under state or 

U.S. laws or regulations; however, insurers listed with the New York Stock Exchange are 

required by the terms of membership on the Exchange to have an internal audit function. In 

addition, it is common practice in the U.S. for insurers, especially but not limited to larger 

ones, to have an internal audit function. Current discussions within the NAIC pertaining to 

corporate governance have discussed implementing state requirements for an internal audit 

function for insurers over a certain size.
 Page 119 of 130

Topic 2: Onsite examinations 

This section of this document compares current/implemented policies and procedures of the 

state-based regime in the U.S. with anticipated EU policies and procedures. Although the 

Solvency II Directive has been adopted, it has yet to be transposed into Member State laws 

and implemented in practice. For example, this section does not consider certain provisions 

that have yet to be consulted upon in the EU, such as the SRP Guidelines. 

This topic covers the following: (a) the powers, responsibilities and objectives in relation to 

on-site examinations (b) the frequency of the on-site examination; (c) the examination scope 

and procedures; (d) the report of the on-site examination; and (e) consideration as to how 

consistency is achieved across examinations of insurers generally, as well as across U.S.

states and EU Member States. 

2.1 Powers, responsibilities and objectives 

Key Commonalities: 

Supervisors in both regimes are provided the necessary authority to conduct on-site 

examinations. These examinations may cover not only the business and financial condition of 

the insurer, but also the examination of a person if it is necessary to the examination of the 

company. Finally on-site examinations can be conducted of insurer functions and activities 

that are outsourced. 

The objective for regulatory examinations in both regimes includes focus on the solvency and 

financial condition of the insurer in order to ensure policyholder protection and compliance 

with statutes/regulations. To ensure this, all information should be made available to the 

supervisors. 

Also, a risk-focused approach is utilized in preparing and scheduling the on-site examinations

to be performed and also in conducting the supervisory exams. In both cases the examination 

could include a combination of off-site activities and on-site inspections and the off-site 

analysis informs and contributes to the prioritization of the on-site examinations. 

In the U.S. as of January 1, 2010, a new approach to on-site examinations by the states 

became required for all full-scope financial examinations. The intent of this new risk-focused 

surveillance approach is to broaden and enhance the identification of risk inherent to an 

insurer’s operations and utilize that evaluation in formulating the ongoing surveillance of the 

insurer and in conjunction with other supervisory activities. A risk-focused surveillance 

process includes identifying significant risks, assessing and analyzing those risks, 

documenting the results of the analysis, and developing recommendations for how the 

analysis can be applied to the ongoing monitoring of the insurer. 
 Page 120 of 130

In the EU, the Solvency II Directive will incorporate a risk-focused approach framework 

similar, in the objectives, to the one prescribed in the NAIC Financial Condition Examiners 

Handbook (Handbook). 

2.2 Frequency

Key Commonalities: 

Both regimes have regulations in place that allow supervisors to conduct examinations of all 

companies writing insurance business in their states as often as necessary. 

Key Differences: 

The state-based regime in the U.S. requires a full-scope financial examination to be performed 

at least once every five years. Under the Solvency II Directive there are no frequency 

requirements for examinations.

2.3 Examination procedures 

Key Differences: 

In the U.S. the Handbook prescribes how to conduct the examinations of insurers. The 

Handbook prescribes seven distinct phases required to be completed for each examination: 

• Understand the Company and Identify Key Functional Activities 

• Identify and Assess Inherent Risk in Activities

• Identify and Evaluate Risk Mitigation Strategies/Controls

• Determine Residual Risk

• Establish/Conduct Detail Examination Procedures 

• Update Prioritization and Supervisory Plan 

• Draft Examination Report and Management Letter 

In the EU, although the Solvency II Directive will incorporate, as referred, a risk-focused 

approach framework, it does not detail the examination processes to complete a risk-focused 

exam that would be similar to what is prescribed in the Handbook. 

In the U.S., individuals who conduct the off-site (financial analysts) review are often “inhouse” analysts, i.e., they are not the same persons who conduct the on-site examinations 

(financial examiners). Training and certification programs help to ensure consistency between 
 Page 121 of 130

states in conducting examinations. The Handbook provides examples of tests of controls and 

tests of details to address specific risks and examination assertions. Although exam 

procedures are completed based on the assessment of risk, the use of this examination 

repository allows regulators the ability to more consistently apply examination procedures 

when similar risks are identified. 

Under the Solvency II Directive, there is no separation of functions for examinations or 

established example exam procedures for application. Also under the Solvency II Directive, 

although training is being developed at EIOPA level, there are no certification programs 

within the EU Member States. 

2.4 Report 

Key Commonalities: 

In both regimes the on-site examination should lead to a report. 

Key Differences: 

In the state-based regime in the U.S., minimum examination report components for on-site 

examinations exist. The report has a required format for presenting the findings for on-site 

inspections, including sections on the scope of the examination, a summary of significant 

findings, a summary of management and control, financial statements, and a summary of 

recommendations. Examination observations that are not appropriate for inclusion in a public 

report, including findings of a proprietary nature, may be communicated to the company 

through other confidential means. Also, the company has the right to comment on the draft 

report, which includes a 30-day review period and the right to request a hearing. In addition, 

the NAIC’s Model Law on Examinations specifies the process to make the report available to 

the public for review, which typically includes an additional 30-day waiting period after the 

report has been finalized and adopted. Also, there are requirements for the examination report 

to be shared with other states where the insurer is licensed and/or writing business. 

Examination reports are considered public documents, and many state insurance departments 

regularly post them on their websites. 

In the EU, under the Solvency II Directive, there are no minimum report components or 

requirements to share the examination report. 

2.5 How consistency is achieved 

Key Differences: 

State insurance regulators in the U.S. have in place a number of activities that ensure the 

consistency of examinations in practice: 
 Page 122 of 130

• The detail of the Handbook provides for the application of the procedures and 

guidance as to steps to be followed. 

• All states, through their laws or regulations, require the use of the Handbook. 

• The development and up-date of the Handbook is based on the supervisors experience 

which facilitates the implementation.

• The NAIC accreditation process, further described under TC6 report, allows 

compliance assessment and “a peer review process.” 

• The application of actions or measures in relation to “nationally significant” insurers is 

also evaluated and challenged by NAIC’s Financial Analysis Working Group, to 

ensure a greater level of convergence in these cases.

• The standardized training program both at the NAIC and the state level is also 

considered crucial. 

Topic 3: Actuarial involvement and reporting 

This section of this document compares current/implemented policies and procedures in the 

U.S. with anticipated EU policies and procedures. Although the Solvency II Directive has 

been adopted, it has yet to be transposed into Member State laws and implemented in practice. 

This section does not consider certain provisions that have yet to be consulted upon in the EU. 

For example, it appears that EU details on actuarial opinions have yet to be developed. This 

topic covers the following: (a) the tasks and responsibilities of the actuary/actuarial function 

(b) qualifications of the actuary; and (c) the scope of the actuarial report. 

3.1 Tasks and responsibilities 

Key Commonalities: 

Both regimes have established requirements for insurers to maintain a viable actuarial 

function, and both specify requirements for individuals to conduct the actuarial function. 

3.2. Qualifications

Key Differences: 

Some EU Member States currently have a concept similar to that in the U.S. of an appointed 

or responsible actuary, but they have different functions in different Member States. 

In the U.S., to be an appointed actuary, one must meet regulatory requirements of a “Qualified 

Actuary.” To be a Qualified Actuary, the individual must meet specific education, experience, 

and continuing education requirements, as well as various conditions established under the 
 Page 123 of 130

NAIC’s Actuarial Opinion and Memorandum Regulation. Actuaries are required to adhere to 

professional standards (via association with a professional actuarial association). 

In the EU (Solvency II Directive), persons performing key functions (including the actuarial 

function), are to be fit-and-proper. This means that persons who perform the actuarial 

functions needs at all times to fulfill the following requirements: (a) Have professional 

qualifications, knowledge and experience adequate to enable sound and prudent management 

(fit); and (b) be of good repute and integrity (proper). The “fit and proper” requirement does 

not require membership in a professional actuarial association. 

3.3 Report 

Key Commonalities: 

Both regimes require the actuarial function to produce a written annual report. 

Key Differences: 

The prescribed minimum content and distribution of reports differs. 

In the state-based regime in the U.S., the actuarial function issues an opinion as a public 

document that is submitted to the state supervisors (and becomes a public document), the 

NAIC and to the company’s Board of Directors. In the EU (Solvency II Directive), the 

actuarial report is not considered an opinion; it is an internal report and is not addressed to the 

supervisory authority. In the EU, the supervisory authority can request the report, but it is not 

considered a public document. Furthermore, until implementation of Solvency II, it is not 

possible to assess whether the EU actuarial report will be similar to the state-based regime in 

the U.S. In the U.S., in addition to the public actuarial opinion, the actuary must prepare an 

Actuarial Memorandum and a Regulatory Asset Adequacy Issues Summary (for life 

insurance) and an Actuarial Report and Summary (for P&C insurance). The Actuarial 

Memorandum is confidential and is given to the company’s Board of Directors. However, the 

state supervisor can request a copy. The Regulatory Asset Adequacy Issues Summary is 

confidential, but is filed with the state supervisor and given to the Company’s Board of 

Directors. The Actuarial Report is confidential and is available to the regulators and the Board 

of Directors. The Actuarial Opinion Summary is filed confidentially with the regulator. In the 

EU, work under development on system of governance will aim at further convergence of a 

minimum content of the report.

Both regimes have requirements for actuarial involvement in aspects of reserve analysis 

(technical provisions). The EU’s actuarial function also encompasses opinions on the 

underwriting policy and the overall reinsurance policy. In the U.S., some aspects of the 

actuarial work will touch on these issues (e.g., the illustration actuary must opine on the 

supportability of the current dividend scale for par business; an actuary must disclose issues 

related to non-guaranteed elements in insurance contracts – which is impacted by 
 Page 124 of 130

underwriting and investment policy). The actuary must comment on significant risks that 

could impact financial reporting of reserves, which may include issues involving reinsurance 

collections, etc. The EU (Solvency II Directive) also requires the actuarial function to 

contribute to the effective implementation of the risk-management system, in particular with 

respect to the risk modelling underlying the calculation of the capital requirements (see TC3) 

and to the own risk and solvency assessment. In the U.S., it is expected that actuaries be 

involved in those processes, but it is not a state regulatory requirement. 

Actuarial Detail Review - In the U.S., there are laws and regulations that require minimum 

insurance benefits for certain contracts that are reviewed by internal or external actuaries. In 

the EU this is a contractual feature and it is not set by Solvency II, although individual 

Member States may set their own requirements in this area. 

Topic 4: Member State Survey

As noted above, and with the exception of the independent audit topic, the preceding sections 

of this report compare current/implemented policies and procedures of the state-based regime 

in the U.S. with anticipated EU policies and procedures. As Solvency II Directive has yet to 

be transposed by the Member States, to provide an indication of current practices in the EU 

with respect to on-site examinations and actuarial involvement, a limited survey was 

performed of such current practices in five EU Member States, each of which provided 

responses to a brief questionnaire and supporting documentation. The survey questions 

focused on certain supervisory requirements, processes and procedures for performing on-site 

inspections and for actuarial involvement by undertakings in general; the survey did not 

solicit information about how those may have been applied as regards any particular 

undertaking. However, it should be noted that the SRP Guidelines under development aim at 

further convergence of the supervisory review process within the EU.

Based on the limited survey, many of the differences between the state-based insurance 

regulatory regime in the U.S. and the EU Solvency II regime related to on-site examinations 

and actuarial involvement identified in the preceding sections of this report were also noted at 

the Member State level. In other words, where the two regimes have differences in these 

areas, similar differences tend to exist when comparing the state-based regime in the U.S. to 

the current practices in the EU based on the limited survey results. 

For example, under the Solvency II Directive there are no specific frequency requirements for 

examinations. Four out the five Member States surveyed indicated that under their current 

practices there also are no specific frequency requirements, although one Member State 

reported that examination frequency is based on the market impact of the insurer (ranging 

from no specific requirement – as often as necessary – for those with the largest market 

impact, to every 10-12 years for those with the lowest market impact). In the U.S., state 

insurance regulators also can conduct an examination of any insurer writing insurance 

business in their state as often as necessary, but the regulators also require that a full-scope 

financial examination of an insurer be performed at least once every five years.
 Page 125 of 130

Other examples include that, for three of the five Member States surveyed, it appears that 

written guidance outlining how a risk-focused examination should be performed exist 

although with different levels of detail; for the other two there does not appear to be detailed 

written guidance outlining how a risk-focused examination should be performed; and none of 

the Member States surveyed appeared to have specific requirements outlining the contents of 

examination reports or how the results of on-site examinations would be shared with other 

relevant supervisors. 

In relation to actuarial involvement and reporting, one Member State does not require the use 

of an appointed actuary. Those that do have requirements in this area allow for flexibility in 

suitability qualifications by allowing general fit and proper evaluations as opposed to 

requiring specific credentials. Not all of the Member States surveyed require the person to be

an actuary by training (through a professional society); some allow a person with 

mathematics/statistics background to perform the function. Not all lines of business require an 

appointed actuary (actuaries tend to be required for life insurance and only specific non-life 

lines of business). The actuaries’ responsibilities also vary by Member State (e.g., opine on 

technical provisions, pricing, etc.). 
 Page 126 of 130

Appendix I – Acronyms and Abbreviations

The following abbreviations and acronyms are used throughout the accompanying seven 

technical committee reports. The table below defines each as they are used in the reports, 

along with an indication as to whether they emanate from a topic or subject matter that is EUbased, US-based (e.g., state or federal), or relevant to both. 

Abbreviation or 

Acronym EU US Definition

ACL √ Authorized Control Level, an RBC-based regulatory action 

threshold in the state-based regime in the U.S. 

AICPA √ American Institute of Certified Public Accountants, the 

professional organization of Certified Public Accountants 

in the U.S. 

ATS √ Analyst Team System, a peer activity of state insurance 

regulators in the U.S. and which is administered by the 

NAIC

BHC √ Bank Holding Company, a holding company whose entire 

corporate group is subject to consolidated supervision in 

the U.S. by the Federal Reserve by virtue of its ownership 

of a bank

CAL √ Company Action Level, a minimum amount of capital 

determined by RBC, below which corrective action by 

state insurance regulators in the U.S. would be taken (if 

not already taken based on criteria other than RBC)

CEIOPS √ Committee of European Insurance and Occupational 

Pensions Supervisors, the predecessor organization to 

EIOPA

Credit for 

Reinsurance Models 

NAIC Credit for Reinsurance Model Law (#785) and 

NAIC Credit for Reinsurance Model Regulation (#786) 

Dodd-Frank Act √ Dodd–Frank Wall Street Reform and Consumer Protection 

Act, which was enacted into federal law in the U.S. in 

2010. 

EC √ European Commission (comprised of 27 Commissioners), 

one of the main institutions of the European Union, 

representing and upholding the interests of the EU as a 

whole, amongst others, oversees and implements EU 

policies by enforcing EU law (together with the Court of 

Justice) and represents the EU internationally, for example, 

by negotiating international trade agreements between the 

EU and other countries. 

EEA √ European Economic Area, established on 1 January 1994 

following an agreement between the Member States of the 

European Free Trade Association (EFTA) and the 

European Community, later the European Union (EU). 

Specifically, it allows Iceland, Liechtenstein and Norway

to participate in the EU's Internal Market without a 

conventional EU membership. 
 Page 127 of 130

Acronyms and Abbreviations (Cont’d)

Abbreviation or 

Acronym EU US Definition

EIOPA √ European Insurance and Occupational Pensions Authority, 

part of the European System of Financial Supervision 

consisting of three European Supervisory Authorities and 

the European Systemic Risk Board, independent advisory 

body to the EC, the European Parliament and the Council 

of the EU

EIOPA Regulation √ Regulation (EU) No 1094/2010 of the European 

Parliament and of the Council of 24 November 2010 

establishing a European Supervisory Authority (European 

Insurance and Occupational Pensions Authority), 

amending Decision No 716/2009/EC and repealing 

Commission Decision 2009/79/EC

ERM √ √ Enterprise Risk Management, a framework for risk 

management across an entire enterprise, including all 

entities within a group, and addressing all material risks. 

ESRB √ European Systemic Risk Board, is responsible for the 

macro-prudential oversight of the financial system within 

the EU in order to contribute to the prevention or 

mitigation of systemic risks to financial stability in the EU 

FRSAC √ Financial Regulation Standards and Accreditation (F) 

Committee of the NAIC, which oversees the NAIC’s 

Accreditation Program 

FACI √ Federal Advisory Committee on Insurance, a body that 

provides advice and recommendations to the FIO to assist 

the FIO in carrying out its duties and authorities.

FAWG √ Financial Analysis Working Group of the NAIC, which 

performs analyses of nationally-significant insurers and 

operates as a peer review mechanism for state insurance 

regulators in the U.S. 

FDIC √ Federal Deposit Insurance Corporation, a U.S. 

governmental agency that preserves and promotes public 

confidence in the U.S. financial regime by insuring 

depositors up to certain amounts, by identifying, 

monitoring and addressing risks to the deposit insurance 

funds; and by limiting the effect on the economy and the 

financial regime when a bank or thrift institution fails

FRB √ Federal Reserve Board of Governors, the central bank of 

the United States
 Page 128 of 130

Acronyms and Abbreviations (Cont’d)

Abbreviation or 

Acronym EU US Definition

FICOD √ Financial Conglomerates Directive: Directive 2002/87/EC 

of the European Parliament and of the Council of 16 

December 2002 on the supplementary supervision of credit 

institutions, insurance undertakings and investment firms 

in a financial conglomerate and amending Council 

Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 

92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 

98/78/EC and 2000/12/EC of the European Parliament and 

of the Council

FIO √ Federal Insurance Office, which was created by the DoddFrank Act as part of the U.S. Department of the Treasury 

to, among other things, monitor all aspects of the insurance 

industry, coordinate and develop Federal policy on 

prudential aspects of international insurance matters, 

including representing the United States, as appropriate, in 

the International Association of Insurance Supervisors

FOI √ Freedom of information laws in the U.S. concerning 

government records and actions which are premised on 

public access to official actions

SRP Guidelines √ Proposed guidance that is under consultation in the EU 

pertaining to the supervisory review process 

Handbook √ Financial Condition Examiners Handbook of the NAIC

IGT √ √ Intra-group transaction, i.e., a transaction between two or 

more related parties within a corporate group

IHC Model Act √ NAIC Insurance Holding Company System Regulatory

Act and accompanying regulation (No. 440 and 450)

ISA √ √ International Standards on Auditing, issued by the 

International Auditing and Assurance Standards Board

MCL √ Mandatory Control Level, an RBC-based regulatory action 

threshold used in the state-based regime in the U.S.

MCR √ Minimum Capital Requirement, part of the prudential 

regulatory regime in the EU; a minimum level of security 

below which the amount of financial resources should not 

fall. 

MD&A √ Management’s Discussion & Analysis, a narrative that is 

part of the Annual Statement which is filed by insurers 

with state insurance regulators in the U.S., as well as in 

financial reports (Form 10-K) filed by publicly-held 

companies with the SEC

MoU √ √ Memorandum of Understanding

NAIC √ National Association of Insurance Commissioners, a 

standard-setting and regulatory support organization to 

state insurance regulators in the U.S. 
 Page 129 of 130

Acronyms and Abbreviations (Cont’d)

Abbreviation or 

Acronym EU US Definition

ORSA √ √ Own Risk and Solvency Assessment; the processes and 

procedures used to identify, assess, monitor, manage, and 

report the short and long term risks a (re)insurance 

company or group faces or may face and to determine their 

capital adequacy (“prospective solvency assessment”) 

from the company-own perspective

QRT √ Quantitative Reporting Template, a financial report form 

that is used by insurers for filing financial information on a 

quarterly basis with a national supervisory authority in the 

EU 

RAL √ Regulatory Action Level, an RBC-based regulatory action 

threshold in the state-based regime in the U.S.

RBC √ Risk-based capital, the basis for capital requirements for 

insurers in the U.S. and which sets thresholds to prompt 

regulatory action

SEC √ Securities and Exchange Commission, a federal agency in 

the U.S. that is the primary overseer and regulator of the 

U.S. securities markets

SCR √ Solvency Capital Requirement, part of the prudential 

regulatory regime in the EU; a risk-sensitive capital 

requirement which is based on a prospective calculation 

and intended to trigger appropriate and timely intervention 

by supervisory authorities

SFCR √ Solvency and Financial Condition Report, a financial 

report form that is used by insurers for filing financial 

information on an annual basis with a National 

Supervisory Authority in the EU

SLHC √ Savings & Loan Holding Company, a holding company 

whose entire corporate group is subject to consolidated 

supervision in the U.S. by the Federal Reserve by virtue of 

its ownership of a savings & loan

Solvency II Directive √ Directive 2009/138/EC of the European Parliament and of 

the Council of 25 November 2009 on the taking-up and 

pursuit of the business of Insurance and Reinsurance 

(Solvency II)

SPV √ √ Special Purpose Vehicle 

SPRV √ √ Special Purpose Reinsurance Vehicle

SPRV Model Act NAIC's Special Purpose Reinsurance Vehicles Model Act 

(#789)

TAC √ Total Adjusted Capital 

TC √ √ Technical Committee, refers to one of seven such 

committees that worked to facilitate mutual understanding 

of the characteristics and specificities of the insurance 

regulatory regimes in the EU and in the U.S. which is the 

subject matter of this report
 Page 130 of 130

Appendix II – Contributing Parties

The Steering Committee acknowledges the contributions of all who participated on one or 

more Technical Committees and in preparing the material which is the basis for this report. 

Those individuals are listed below along with their state/Member State/ or organization 

affiliation.

Julian Adams United Kingdom, FSA

Thorsten Arhold Germany, BaFin

John Bauer NAIC

Marius Berchem Germany, BaFin

Mike Boerner Texas, USA

Al Bottalico California, USA

Jeroen Brinkhoff Netherlands, DNB

Larry Bruning NAIC

Paolo Cadoni United Kingdom, FSA

Elena Barra 

Caracciolo Italy, ISVAP

John Connolly FIO

Michael Consedine Pennsylvania, USA

Ryan Couch NAIC

Kris DeFrain NAIC

Dan Daveline NAIC

Randall Dodd FIO

Dessislava Doncheva EIOPA

Petra Faber-Graw Germany, BaFin

Lou Felice NAIC

Tom Finnell FIO

Ed Forshaw United Kingdom, FSA

Julie Gann NAIC

Julie Glaszczak NAIC

Axelle Gokkoyun France, ACP

Sandra Hack EIOPA

Sejal Haria United Kingdom, FSA

Petra Hielkema Netherlands, DNB

Dora Iltcheva EIOPA

Bruce Jenson NAIC

Steve Johnson Pennsylvania, USA

Jeff Johnston NAIC

Nichola Joly France, ACP

Christian Kerfriden United Kingdom, FSA

Jane Koenigsman NAIC

Iwona Krasniewska EIOPA

Matt McKenney FIO

Peter Medley Wisconsin, USA

Ana Teresa Moutinho EIOPA

Simona Murariu EIOPA

Christine Neighbors Nebraska, USA

John Nolan FIO

Charlotte Paterson EC

Richard Piazza Louisiana, USA

José Pinto de Sa Portugal, ISP

David Revelin France, ACP

Fiona Rogers United Kingdom, FSA

Danny Saenz Texas, USA

Daniel Schelp NAIC

Todd Sells NAIC

Jonathan Sepanski United Kingdom, FSA

Bartholomaeus 

Skrobis Germany, BaFin

David Smith Virginia, USA

Ray Spudeck FIO

Doug Stolte Virginia, USA

Francois Tempe France, ACP

Eric Thompson NAIC

Gita Timmerman NAIC

Olivier Trecco France, ACP

Christina Urias Arizona, USA

Marieke van 

Grevenstein EIOPA

Thijs van Woerden Netherlands, DNB

Elzbieta Woynowska United Kingdom, FSA

Sheikh Yasir United Kingdom, FSA

Manuela Zweimueller EIOPA