NAIC's McCarty: How About Too Big to Bail, Instead of Too Big to Fail?

McCarty, also the Florida insurance commissioner, said afterward in response to a reporter’s question that failure comes from inadequate supervision—he had been referencing AIG’s issues as coming from inadequate supervision by the Office of Thrift Supervision (OTS)  in his previous comments to the group—and not capital adequacy issues, and that the too-big-to-fail label could have perverse and unintended consequences.

Some industry parties later said this was a stalking horse, and it would not be possible to break up a company, except on antitrust grounds, and that to operate internationally, an insurance company had to have to be very big to even compete. Of course, they are concerned with any new layers of capital requirements imposed through the G20  Financial Stability Board (FSB) and Treasury’s Dodd Frank creation, the Financial Stability Oversight Council, (FSOC,) and many argue that systemically important is a loosely defined word and no one insurance company fits the definition anyway. G20 Leaders asked the FSB to develop a policy framework to address the systemic and moral hazard risks associated with global or G-SIFIS.

Susan Voss, the NAIC immediate past president and Iowa Insurance Commissioner asked Sen. Vitter to engage federal legislators in conversation to highlight the fact that insurance is not banking, as Washington is very “bank-centric.” Voss is concerned that capital requirements required for banks could too easily be transferred to insurance companies, which don’t operate in the same fashion, and could adversely affect the industry, internationally as well as domestically.

There is also some concern about the final language from securities and futures regulators on a definition rule on security-based swaps under Dodd Frank— the NAIC had sought clarification in the final language, which has not yet been released.