Insurers in the U.S. and elsewhere are concerned that an effort to set an international capital standard for globally active insurers could result in duplicative rules, higher costs and less choice for insurance buyers.

The Basel, Switzerland-based International Association of Insurance Supervisors sought comment on an international capital standard during a consultation that ended Feb. 17. That consultation is the first of three slated before developing its international insurer capital standard next year.

“This public consultation is the first step in a multiyear process to develop and finalize the ICS,” the IAIS said in a statement opening the consultation in December. The consultation is intended to develop elements of a proposed standard on issues “such as valuation, qualifying capital resources, an example of a standard method for determining the ICS capital requirement as well as other potential methods for determining the ICS capital requirement.”

U.S. insurance trade groups expressed concerns about the proposal in formal comments to IAIS, concerns that remain as the process enters its next phase.

One concern is the nature of U.S. regulation vs. some other jurisdictions, said J. Stephen Zielezienski, senior vice president and general counsel at the American Insurance Association in Washington.

“In the U.S. because we're in a state-based system where capital requirements are at the legal entity level, it's particularly tricky because we view capital standards from bottom-up perspective vs. a top-down level,” Mr. Zielezienski said, “In the U.S., the capital is there at the legal entity level; in another jurisdiction that views it from a group level, capital may be held at the group level to support the legal entities.”

He said that the international insurer capital standard should not be designed to replace local capital standards. “You want a complimentary approach that doesn't add another layer of complexity,” he said, adding that the “process will take awhile.”

Australia, Bermuda, Canada and Switzerland already have insurance group standards in place, said Brad Kading, president of the Association of Bermuda Insurers and Reinsurers.

Those laws “reflect the idiosyncratic nature of the markets they regulate” and are based on “knowledge gained from extensive field testing” undertaken before implementation. In addition, both the Federal Reserve Board and the National Association of Insurance Commissioners are working on group standards, he said.

The main concern with the IAIS effort is that it will roll out a global standard that has not been field tested in the markets in which it is intended to apply, that it would impose a basis of valuation of assets and liabilities that may be different from those in place in the jurisdiction, and that it will result in high capital requirements, Mr. Kading said.

If the standard were implemented in a way that focuses on transparency and “knowledge-building, the ICS provides some value,” he said.

But if it were implemented to require excess capital or impose a one-size-fits-all capital formula on a global basis, “it would be counterproductive to the goal of making insurance markets competitive,” Mr. Kading said. “Excessive or redundant capital standards would increase costs for consumers and make markets less competitive.”

The real benefit to insurance buyers has never been defined, said Dave Snyder, a vice president in the Property Casualty Insurers Association of America's Washington office. He said one capital standard will lead to systemic risk “because you drive all companies to the same business model.” It also would overlay an international standard on top of existing standards, which would lead to increased cost to buyers.

“One of our chief concerns is you end up having a sort of one-size-fits-all standard imposed on marketplaces around the world,” said Steve Broadie, vice president-financial policy at Chicago-based PCI.

“We're dealing with a global marketplace, but in many cases insurance is extremely local,” Mr. Broadie said. “They're always competing in their domestic markets,” and there's a “real danger” that an inappropriate global standard would spread to domestic markets.

In fact, an international standard could prove to be counterproductive, Mr. Broadie said. If all regulators and companies share a global view of risk, “you may miss something. If you do so, you've increased the risk rather than deal with that appropriately.”

“The fundamental question we still have is what is the benefit to consumers, when we know the wrong ICS will both create systemic risk, add to costs and even reduce competition by adding inappropriate burdens to niche players,” Mr. Snyder said.