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U.S. Solvency Modernization Initiative

On March 11, 2010, the Solvency Modernization Initiative (SMI) Task Force convened in Phoenix to critically examine and modernize the U.S. solvency framework for insurance regulation. Over the past two decades, the U.S. regulatory system has seen significant improvements, including the development of risk-based capital (RBC) standards and model audit rules. The meeting aimed to facilitate dialogue among regulators and stakeholders, gather insights for a comprehensive review, and discuss potential changes in capital requirements and governance frameworks to align better with global developments.

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U.S. Solvency Modernization Initiative

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  1. U.S. SolvencyModernization Initiative Director Christina Urias, Chair Solvency Modernization Initiative (EX) Task Force Interim Meeting, Phoenix, March 11, 2010

  2. Background - Evolution of the U.S. Solvency System • U.S. insurance regulation: a successful, detailed, uniform financial regulatory system. • Major financial regulation changes in the early 1990s; RBC development. • 20 years of continuous improvements: model audit rule, risk-focused exams, uniform statutory accounting model, etc. • Today, global and national developments call for another comprehensive review.

  3. Solvency Modernization Initiative (SMI) • Critical examination and review of U.S Solvency Framework • Modernize, Modify, Expand, Eliminate, Enhance U.S. regulatory system as appropriate • Examine international developments for potential use in U.S. insurance regulation

  4. Capital Requirements • Additional Risk Charges • Defined Safety Level • Expanded Formula; Modeling with Safeguards Today • Risk-Based • Cover Major Risks • Insurance Parent – “Group RBC”

  5. Financial Reporting & Supervision(Off-Site and On-Site) • Significant Training on Risk-Focused Surveillance • New ERM requirements – ORSA • Company Stress Tests Today • Extensive Uniform Financial Reporting • Electronic reporting • New Risk-Focused Surveillance Process

  6. Accounting/Valuation • Possibilities: Retain SAP? No changes? Utilize GAAP with some non-public statutory reporting? • Life Insurance principles-based reserving • Does P&C discounting with an explicit margin provide better information? Today • Fully codified statutory accounting • P&C Principles-Based Valuation (Life is Rules-Based) • Limited P&C discounting

  7. ERM/Governance • Broader authority; new law? • Governance framework • Risk management - ORSA Today • Existing legislation and case law • “Back door” – Qualitative analysis, Risk-focused Financial Examinations

  8. Today’s Meeting: Goals • Regulator and Interested Parties Dialogue • Discuss subject matter, allow parties who submitted written comments to present further commentary prior to regulator discussion • Gain information to further develop the SMI Roadmap/work plan • Consider drafting a capital requirements white paper based upon the consultation paper and comments received

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