Connecticut, home to The Hartford and other multinational companies, became the first U.S. regulator of any kind to join an international agreement of the joint signatory of the International Association of Insurance Supervisors (IAIS) through signing its “Multilateral Memorandum of Understanding (MMoU), both parties announced today.
The agreement was signed earlier in the week when Leonardi was in Basel, Switzerland, where the IAIS is headquartered.
Connecticut is already a member of the IAIS, as is the NAIC, but this action means that the Connecticut has signed on to a binding agreement – the MMOU – organized by the IAIS, providing a framework among several jurisdictions for sharing of confidential information.
To be part of this MMoU, a signatory needs to pass a rigorous review process, according to and Peter Braumüller, chairman of the executive committee of the IAIS.
Other states can also apply and join,but a response from IAIS was pending on whether any other U.S. entities have applied and the NAIC was staying mum on the subject.
“We are honored to join our regulatory colleagues from around the world to help assure market stability – the ultimate consumer protection…We have the expertise to help monitor an increasingly complex and global industry,” Leonardi stated.
The MMoU will continue on in duration and is not “renewable,” according to a Connecticut Insurance Department spokeswoman. “There is no impact when the head of an agency leaves office. However, a jurisdiction must remain in compliance with the standards required to become a signatory to the MMoU. If a jurisdiction’s laws or policy change governing the sharing of information, etc., it could cause the jurisdiction to be excluded from the MMoU.”
The commissioner is also vice chair of the International Committee of the NAIC and a member of the IAIS Financial Stability Committee, as well a an advisory member to the Federal Insurance Office (FIO) at Treasury.
“We support the sharing of necessary information among global insurance regulators. The instrument that was signed would provide for that as well as contain some very important confidentiality protections which are necessary because of the sensitivity that will be shared,” said David Snyder, vice president and associate general counsel at the American Insurance Association in a call from Basel.
“Increasing the sharing of information across borders is an important part of the emerging global regulatory framework,” Snyder noted. “Because insurance regulation in the U.S. is at the state level, it’s important that our regulators have the ability to share information but do so in the context of the utmost confidentiality protection and that is provided for under the instrument Connecticut signed.”
International insurance industry oversight has become increasingly critical since the collapse of AIG after its credit default swap house of cards fell in the U.K. in 2008, and oversight internationally is expected to be a very delivately worded part of the FIO report, now overdue to Congress.
FIO Director Michael McRaith was also in Basel this week, at the IAIS conference, several persons said.
Yoshihiro Kawai, Secretary General of the IAIS, who spoke to the NAIC committee on the challenges of ComFrame’s charges at the Fall 2011 meeting at the Gaylord , said then that the Basel-based body has not reached any consensus on globally systemically important financial institutions (G-SIFIs) to the Financial Standards Board, which in turn reports up to the G20, or Group of 20 Developed Countries (G20).
That report is expected by summer 2012. In fact, the IAIS is debating if there is a G-SIFI in insurance, what should be done, how does one interpret capital or other needs if a GSIFI insurer does exist.
Leonardi, along with other state regulators, has been a vocal opponent of the one-size-fits-all approach he believes the international regulatory solvency framework is taking with Solvency II.
The NAIC is developing its own supervision requirement of Solvency II with ORSA, the proposed Own Risk and Solvency Assessment requirement for insurance holding companies, a U.S.-wrought Solvency II initiative.
Actual implementation of the ORSA manual won’t be sooner than an effective date of Jan. 1, 2014, if not later, because critical issues remain. The ORSA Manual, if adopted by the NAIC and then individual states, would apply the ORSA requirement to stand-alone insurers with premiums exceeding the manual’s exemption threshold.
ORSA has been referred it to the Financial Condition Committee for further action.
Leonardi, with fellow FIO advisory circle member and Washington, D.C. Insurance and Banking Commissioner William White, explained to National Underwriter last fall that using internal models for determining capital requirements are an issue with Solvency II.
But regulators continue to hammer out schemes and frameworks that suit their domestic insurance industry as well as help provide supervision of an ever-evolving global marketplace.
“As financial markets continue to grow more globally interconnected, supervisors need the ability to cooperate quickly and effectively for the benefit of consumers. The MMoU is an essential regulatory tool – not only in crisis situations, but on a day-to-day basis – for supervisors to foster safer and more stable insurance markets, and the IAIS encourages each of its Members to become a MMoU signatory,” Chairman Braumüller stated.
Previous MMoU signatories include, among others, Australia, Austria, Bermuda, Chinese Taipei, France, Germany, Japan, the Netherlands, Singapore, and Switzerland. A complete list of signatories can be found on the IAIS website (www.iaisweb.org) or by clicking here.