Though America long ago achieved political inde- pendence, the financial crisis and the subsequent ongoing turmoil within the Eurozone are potent re- minders that our economic inter-reliance with Europe has never ebbed. This intercontinental comity
is also increasingly present in the regulatory code.
Much as the advent of aviation has helped shrink the
Atlantic, new rule-making initiatives are bridging
once disparate regulatory regimes.
The largest exemplar of this trend toward global
harmonization is the pending Solvency II requirements
under development by the European Union. Due to be
in force on December 31st 2012, Solvency II will require
insurers to be explicit about their governance practices
and require them to perform an Own Risk and Solvency
Assessment (ORSA), an internal evaluation by an insurer to determine its risk profile.
For U.S.-based insurers, the focus on governance has
become prominent in the wake of the financial crisis and
its subsequent corrective measure, the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
Specifically, the Solvency II directive contains three
pillars that house a broad range of requirements regarding internal audit, risk management and actuarial functions, as well as overall corporate governance. Pillar I is
comprised of quantitative measures that demonstrate an
insurer’s capital adequacy, Pillar II concerns qualitative
measures that provide evidence of an effective governance
framework within an insurer, while Pillar III focuses on
transparency and disclosure requirements.
Under Pillar II of Solvency II, corporate governance
is defined as having of four core functions: risk manage-
ment, actuarial, internal audit and internal controls. In
its global outlook report for 2011, consultancy PWC
stressed that insurers cannot disregard the amount of
effort necessary to comply with Pillar II. “While most
European insurers have been devoting the vast majority
of their attention to Pillar I quantitative requirements,
an increasing number are turning their attention to the
requirements of Pillar II by enhancing their governance
systems (ERM, Internal Audit, Compliance, and Actu-
arial) and developing a formal process for the (ORSA),”
the report states.
Increased attention from regulators, rating
agencies and consumers are lending new
urgency to efforts by insurers to improve
By Bill Kenealy for
July/august 2011 insurance networking news 23