FRANKFURT—The United States should not be among the first wave of countries assessed for equivalence with European Union insurance regulations under Solvency II because of difficulties determining an assessment under the U.S. state-based system of insurance regulation, according to a draft recommendation released by a group of European regulators on Wednesday.

But the Frankfurt-based Committee of European Insurance and Occupational Pensions Supervisors recommended that both Bermuda and Switzerland be among the first group of countries accessed, along with Japan, which would get a partial assessment.

Solvency II is a risk-based regulatory system slated to go into force across the European Economic Area at the end of 2012. Countries that want to be recognized as equivalent by the E.U. have to undergo an assessment by the European Commission. This year CEIOPS published a consultation paper setting the criteria the commission would use to evaluate “third,” or non-E.U., countries. Third countries can seek three types of equivalence: reinsurance, group supervision and group solvency.

Recognizing equivalency means, for example, that third-country reinsurers would not be subject to collateral requirements in Europe and in general would mean a reduced compliance burden for insurers, reinsurers and their supervisors.

But CEIOPS said in its draft advice issued Wednesday that the U.S. state-based system of insurance regulation hampers equivalency assessment. CEIOPS noted that while the National Assn. of Insurance Commissioners acts as a forum for drafting, negotiation and promulgating model laws, “it is not a supervisory authority in its own right.” In fact, the draft noted that a previous assessment of equivalence “foundered on the fact that the NAIC was not a ‘competent authority' as understood in relevant E.U. directives.”

The draft noted that financial services regulatory reform legislation before the Senate would create a federal insurance office but added that day-to-day regulation remains a matter for individual states.

“Recognizing the current difficulties in pursuing an assessment of the United States, and CEIOPS' own ability to undertake multiple assessments, it is proposed to advise the commission that as possible priorities for countries to be included in the first wave, it should consider Switzerland and Bermuda, in respect of all the three equivalence articles,” as well as Japan in reinsurance.

“CEIOPS would not be in a position to take on additional equivalence assessments due to the high level of resources required by equivalence exercises and the very limited timeframe specified,” according to the draft.