Filed Under:Your Practice, Regulatory

Capital standards and now 'critical' insurers, oh my

U.S. insurers concerned about FSB, IAIS 'intrusions' into US regulatory system

Too many new standards? Here is
Too many new standards? Here is "Man Loses History" by artist Clive Van Den Berg (AP Photo/Vincent Yu)

International standard-developing bodies have been turning a studied eye towards insurance regulator standards this summer, with the latest move coming from the G-20’s Financial Stability Board (FSB) involving standards for unwinding failing insurers.

One insurance representative said these global agencies' draft measures “calls into questions who will be regulating insurers in the future.”

The FSB, which is a bank-heavy international organization in which the U.S. Treasury, the Federal Reserve Board and the Securities and Exchange Commission (SEC) have seats, is seeking comments on a document for non-bank financial institutions -- like insurers -- that could be systemically significant or “critical in failure.”

The consultative document, released Aug. 13, which was developed by the FSB in conjunction with relevant standard setters, is called Key Attributes of Effective Resolution Regimes for Financial Institutions.

The FSB identified its first round of global systemically important insurers (G-SIIs) July 18, including U.S. behemoths Prudential Insurance, MetLife and AIG, but appears to be expanding criteria to other insurers who may not be systemic, although their failures would be “critical.”

“The US has a comprehensive resolution process as do other jurisdictions,” noted Dave Snyder, vice president, international policy, Property Casualty Insurers Association of America (PCI), expressing concern about what he called the latest in a series of “major intrusions” into the U.S. insurance regulatory system this summer.

Each state already has a full resolution statute and the courts provide a due process element, he explained, adding that all states have a policyholder protection scheme. 

When the International Association of Insurance Supervisors (IAIS) released its specific policy measures for G-SIIs July 18, it added that it is preparing a workplan by October “to develop a comprehensive, group-wide supervisory and regulatory framework for internationally active insurance groups (IAIGs), including a quantitative capital standard.”

A proposed phantom quantitative capital standard, always looming above or beyond the IAIS ComFramea common framework for supervision of global insurers, worrying many in the industry. 

Both the life insurance industry and the property casualty industry have expressed concern about global standards that are too bank-centric, are viewed as unnecessary or without cause, and reveal a mission creep by the FSB and the IAIS.

The IAIS, unreachable for this article, has stated that it “considers a sound capital and supervisory framework for the insurance...to be essential for supporting financial stability.”

On the life insurance side, Jack Dolan, spokesman for the American Council of Life Insurers (ACLI), noted “we are reviewing the drafts. Certainly these are important initiatives. We are devoting significant resources to them and consulting with our companies.”   

The NAIC has said that it would address these concerns during its summer national meting in Indianapolis Aug. 24. Formerly, it has expressed concern for IAIS and FSB actions and the direction of work on G-SIIs and ComFrame this spring and summer. NAIC's CEO, Ben Nelson, has said that one of the NAIC’s biggest concerns with the IAIS project of ComFrame is that it seems to be based on a bank-centric, Euro-centric approach and that it has become overly prescriptive in nature. 

Nelson has said in Congressional testimony he wants to see a cost analysis of ComFrame before field testing begins next year, echoing the sentiments of some in the industry on this and other IAIS/FSB work. 

The FSB is chaired by the current governor of the Bank of England. Its secretariat is located in Basel and hosted by the Bank for International Settlements.

 

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