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SEOUL, South Korea — A global risk-based capital standard for insurers would help large insurers better diversify their risks and reduce their costs, but such harmonization could be way off in the future, insurance experts said.
Most chief risk officers at large insurers agree that there is a need for global capital standards, said John Fitzpatrick, secretary general of the Geneva Association in Switzerland.
Large insurers often operate across the globe, which diversifies their exposures and reduces their risks, he said Wednesday during a session of the International Insurance Society's annual seminar in Seoul, South Korea.
“When you then face a regulatory system that is jurisidiction-by-jurisdiction in the world, you start to break out the benefits of that diversification and you reduce the benefits that exist for customers and for pricing,” Mr. Fitzpatrick said.
There is a need for regulators to agree on principles on how to regulate companies and how insurers should be capitalized, he said.
Harmonizing regulatory cultures and philosophy internationally is difficult, said Jan-Juy Lin, commissioner of Taiwan's Financial Supervisory Commission in Taipei.
For example, Taiwan regulators have to focus on issues such as insurance products being sold in both Taiwan and China, which he said is a unique issue.
In addition, Taiwan is looking at different international regulatory models that it might use as an example, including risk-based capital models in the United States and Solvency II in Europe, and it has to adopt measures that make most sense for the local market, he said.
While global risk-based capital standards may be desirable for large insurers, they are likely way off in the future, said Thomas Leonardi, insurance commissioner for Connecticut.
“We don't have a global accounting standard,” Mr. Leonardi said. “How do you have a global capital standard when you don't have a way to account for it?”