American Property Casualty Insurance Association
  • Staff Contact: Eileen Gilligan     
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  • November 18, 2014
  • New Report Highlights Unnecessary and Harmful Impact of Applying Global Capital Requirements to U.S. Insurers
  • NAMIC and PCI Release Report Examining International
    Insurance Regulation and Its Impact on American Consumers

     WASHINGTON – The National Association of Mutual Insurance Companies (NAMIC) and the Property and Casualty Insurers Association of America (PCI) today release a report highlighting the unnecessary and harmful impact on U.S. consumers of the effort by international regulators to apply global capital requirements to large U.S insurers with substantial foreign business.

    The report, which was authored by economist Dr. Robert Shapiro and supported by NAMIC and PCI, concludes that imposing these regulations on U.S. insurers would likely result in higher rates and less choice across the insurance industry.  The report specifically finds that if large U.S. property and casualty insurers were subject to the new requirements, it could raise annual premiums for homeowner’s coverage by as much as $109 and slow the growth of insurance offerings by as much as $7.3 billion each year. 

    “This report analyzes the rationale and effects of applying new and substantially higher capital requirements, especially for consumers,” said Dr. Shapiro.  “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 buy their policies in the form of higher premiums.”

    The report demonstrates that the global capital requirements are unnecessary given the nature of the U.S. property and casualty insurance industry. The traditional property and casualty insurance business is far less risky than banking.  Unlike the banking industry, insurance industry assets are not heavily concentrated in just a few large institutions, and there is little risk of significant economic disruption should a single insurer fail. 

    The report also shows that U.S. insurers are already more than adequately capitalized, finding that the current resources set aside by the insurance industry for great catastrophes would clearly cover a once-in-a century event with claims more than twice those of the 2005 hurricane season, including Katrina.  And given normal reinsurance practices, the industry also could handle disasters thought likely to occur once every 250 years and even once every 500 years. 

    “There is a clear message from this report: don’t fix what isn’t broken,” said Charles Chamness, president and CEO of NAMIC. “Our current system of state-based insurance regulation is working well, tailoring regulations to the needs of each state.  Imposing a global capital standard on American insurers is unnecessary and could harm American consumers.”

    “The property and casualty insurance industry poses no systemic risk to the larger financial system,” said David Snyder, PCI’s vice president, 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. It is also important to note that this report discusses the effects of a global standard on large internationally active companies but the impact could eventually spread into companies of all sizes.

    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 U.S. Insurers, Part II.”

    The full report can be found here.

  • PCI promotes and protects the viability of a competitive private insurance market for the benefit of consumers and insurers. PCI is composed of nearly 1,000 member companies, representing the broadest cross section of insurers of any national trade association. PCI members write more than $195 billion in annual premium, 35 percent of the nation's property casualty insurance. Member companies write 42 percent of the U.S. automobile insurance market, 28 percent of the homeowners market, 33 percent of the commercial property and liability market and 35 percent of the private workers compensation market.
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