Global capital requirements for US insurers with substantial foreign interest could seriously harm the country’s insurance industry and retard growth, a new report from the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI) claims.
The report, authored by economist Robert Shapiro, determines that such regulations are “unnecessary and harmful,” and could actually raise annual premiums for homeowners policies by as much as $109 and slow the growth of insurance offerings by as much as $7.3 billion a year.
“The bottom line is that accepting these new, European-style capital standards is unnecessary to safeguard the insurance industry and would involve costs for insurers that would undoubtedly be passed on to those who would buy their policies in the form of higher premiums,” Shapiro said.
The international regulations, proposed by the International Association of Insurance Supervisors (IAIS) would require large property/casualty insurance companies to maintain a certain level of capital in order to avert another financial crisis. This basic capital requirement, or BCR, would be calculated by dividing total qualifying capital resources by required capital, both of which would be derived from “a comparable market adjusted valuation approach using current estimates of insurance liabilities,” according to the IAIS.
These new requirements would depart significantly from the traditional state regulation of the US insurance industry.
Shapiro maintains that US insurers are already adequately capitalized, with enough resources set aside for catastrophes with claims more than twice those of the 2005 hurricane season, which included Hurricane Katrina.
“The property and casualty insurance industry poses no systemic risk to the larger financial system,” said David Snyder, PCI’s vice president of international policy. “Not only would a bank-centric, global capital standard be inappropriate for our insurers, it could raise costs for American consumers, many of whom are already on a tight budget.”
The release of the report comes ahead of the House Financial Services Subcommittee on Housing and Insurance Tuesday hearing titled “The Impact of International Regulatory Standards on the Competitiveness of US Insurers, Part II.”
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