European life insurers with US
subsidiaries face being competitively disadvantaged in the US
market by Solvency II, the European Union’s (EU) new regulatory
regime due to be implemented in the EU and European Economic Area
(EEA) in 2013.
This warning comes from rating
agency Moody’s Investor Services analyst Laura Bazer who stresses
that capital requirements under Solvency II will have particular
relevance to spread-based products.
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“Spread-based products are likely
to see some of the largest increases in required capital,” said
Bazer.
“Many European-owned US life
insurers have significant exposure to these products, which, along
with de-risking initiatives, have already led some to de-emphasise
or exit certain US product markets.”
Individual fixed, immediate,
equity-indexed annuities, and guaranteed investment
contracts/funding agreements would be among the product types most
affected, Bazer noted.
She continued that whether the US
regulatory system is considered “equivalent” to the Solvency II
regime will be crucial in determining Solvency II capital charges
for some European-owned US insurance companies.
“Regulatory equivalence would allow
for the continued use of lower local capital requirements in group
solvency calculations. Bazer said.
“Without it, some European-owned US
subsidiaries could be competitively disadvantaged.”
Fortunately, “transitional
equivalence” is now under consideration for selected non-EU/EEA
countries for a period of five years.
Because of the importance of the US market, Moody’s believes
this status will most likely be granted to the US once Solvency II
is implemented.
