In a world where “strong and stable” equates to weak and uncertain, the European legacy market remains strong and stable (as defined by the Oxford Dictionary), transparent, and continues to deliver Certainty (the capital C is not a typo!) and a cleaner, leaner and stronger balance sheet to each carrier that engages in the process through the implementation of the most appropriate “finality” solution.
In the Spring 2017 issue of AIRROC Matters, we discussed the various exit and capital release tools available to the European insurance market (and until a hard, soft, or medium exit is finally negotiated, we will continue to include the UK in the European market) with each providing different degrees of finality and capital relief. In this second of three articles, we will discuss the first finality statute available in the U.S. and steps taken by other U.S. states to adopt a similar framework. We will also briefly look at how these compare to what is available in Europe.
The way we are
The continued lack of investment returns, the need to ring-fence exposure, the more stringent regulatory obligations coupled with the additional capital required to simply operate and write the same level of business; each continues to drive the search for ways with which to limit an insurer’s exposure to the unknown or uncertain and to deliver value to the shareholders. Large groups with no capital issues or regulatory pressures continue to use the various exit tools we discussed in the Spring issue as a key strategic management tool employed to deliver value to their management and shareholders. At the same time, sadly, there is a continuing perception among smaller carriers and, surprisingly, in large and developed markets that the disposal of a book of business or the transfer of older underwriting years is a sign of weakness or failure or a discussion in which one would engage at the brink of insolvency. We, as a legacy market, still have a lot of work to do to educate the wider insurance community and potential clients across Europe and the U.S. of the fact that we are not quasi-liquidators.
Anything is possible – a contagious state of mind
One cannot underestimate the difficulty of achieving a uniform legal framework where different state systems are involved. In Europe, we know this only too well. The implementation of Solvency II, the years that it took to get there, and the consequent costs have been phenomenal. But it was possible.
In the U.S., an analogous challenge exists where insurance regulation is state-based. In order for concepts such as portfolio transfers to work efficiently and on the same basis (so that they would be supported and accepted rather than challenged) there must be a federal or quasi-federal approach, some level of equivalence, and reciprocity.
The various state economic interests, the fact that some commissioners are elected and some are appointed, the concentration of insurance companies in some states more so than in others, among other reasons, give weight to the position that achieving a federal or quasi-federal legal framework for perhaps some but not all elements of insurance and reinsurance regulation would be impossible.
But for a global industry that proved its ability to maintain strength and stability through various economic crises and adapted its practices and offerings through extraordinary innovation and vision, anything is possible. If 28 EU member states of different economic strengths, languages, religions, and cultures achieved the adoption of uniform (but admittedly, not always perfect) legislation, surely, this could also be possible in the U.S.
For the full article, refer to page 20 in the Fall 2017 issue. https://www.airroc.org/assets/docs/matters/AIRROC-Matters-Fall-2017-vol-13-No-2.pdf