The regulatory landscape for insurance companies has undergone significant change in the past decade. Standards and policy measures under development internationally by the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS), once finalised and implemented, could have significant implications on the regulatory framework applied to international insurance groups. The prudential regulation of insurance and reinsurance companies across the European Union has changed dramatically under the Solvency II Directive, which came into effect on 1 January 2016 and affects both European and non-European insurance groups with operations in the European Union. As at the time of writing, it remains to be seen how the United Kingdom’s pending exit from the European Union (Brexit) will affect the UK insurance industry and regulatory environment. In the United States, the individual states have begun implementing various regulatory and legislative changes that will continue to fundamentally affect the operations of large international insurance groups, and at the US federal level, the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (the Dodd-Frank Act) has introduced a new era of federal regulation of certain areas of insurance in the United States, although the future of many aspects of the Dodd-Frank Act remains uncertain. In addition, the International Accounting Standards Board in 2017 and the Financial Accounting Standards Board in 2018 issued important new accounting standards and guidance for insurance companies that will have a significant impact on accounting and financial reporting for insurance companies that use generally accepted accounting principles (GAAP) and International Financial Reporting Standards, although the changes will not become effective until 2021 or 2022. As the legal environment is likely to continue to be in a state of flux for several years to come, it will be critical for practitioners who provide corporate and transactional advice to stay abreast of the latest developments with respect to the United States,the European Union and international insurance regulatory schemes.
International insurance regulatory developments – FSB and IAIS
Following the 2008 financial crisis, a broad consensus emerged among national financial authorities and international financial bodies to strengthen coordination among financial authorities, pursue greater uniformity in financial regulations, and develop and implement enhanced regulatory and supervisory policies in the interest of financial stability and prevention of future financial crises, with an emphasis on enhanced group-wide and cross-border regulation. The FSB has issued a series of frameworks and recommendations intended to produce significant changes in how financial companies, particularly global systemically important financial institutions, should be regulated. These frameworks and recommendations address issues such as systemic financial risk, financial group supervision, capital and solvency standards, corporate governance, effective resolution regimes and a number of related issues associated with responses to the 2008 financial crisis. The FSB consists of representatives of national financial authorities of the G20 nations, various international standard-setting bodies (including the IAIS), as well as the International Monetary Fund (IMF) and the World Bank. FSB member nations agree to undergo periodic peer reviews assessing the soundness and stability of members’ financial systems and their implementation of proposed financial regulatory reforms, which are generally conducted by means of the Financial Sector Assessment Program reports prepared by the IMF or World Bank.