Connecticut is fast carving a place for itself on the international supervision front lines with the addition of two new laws signed by the governor on June 4.
The new laws will give the state greater financial oversight of large, globally active insurance companies, according to the state. Connecticut is engaged in an effort to make itself a more attractive place for insurance businesses, including captives, under the governor’s October 2011 Act Promoting Economic Growth and Job Creation in the State, and increasingly for international reinsurers.
The primary goal for the two new insurance laws is to prevent a repeat of the 2008 financial crisis, according to Connecticut Insurance Commissioner Thomas B. Leonardi, who is heavily involved in international insurance supervision matters. One law would have the added benefit of allowing foreign reinsurers to free up capital and write more business in Connecticut and elsewhere.
The first new law is a holding company law (Public Act 103). It allows the insurance commissioner to establish “supervisory colleges,” consortiums of domestic and international regulators who conduct financial examinations of an insurer that is part of an internationally active holding company.
The supervisory college authority is based on an NAIC model that other states have either adopted or are in the process of adopting.
Through it, the state insurance department will gain an overview of the whole group and have the ability to peer through the window of the holding company to gauge the impact of certain financial activities on a domestic insurer. The state sought this enhanced authority as a result of the financial crisis of 2008.
The second new law, the reinsurance law (Public Act 139), also based on an NAIC model law, grants the state insurance department authority to evaluate and review the financial strength of a foreign reinsurer and the U.S. insurance company that buys the reinsurance. It reduces collateral requirements on a sliding scale for those foreign reinsurers who meet the department’s financial requirements and who are regulated by credible insurance supervisors in their own country.
Connecticut now has the ability to level the playing field for foreign reinsurers “and that could result in lower costs to consumers in the long run,” Leonardi said.
Gov. Dannel P. Malloy signed the bills into law June 4 and was joined in his office by Leonardi and a group of international insurance regulators as well as NAIC CEO Terri Vaughan, Ph. D. They were already in town, participating in a two-day meeting in Hartford of the International Association of Insurance Supervisors (IAIS).
Connecticut and Leonardi are moving toward the front lines of international insurance regulation. Leonardi travels a great deal as part of membership in the IAIS, he is vice chair of the International Committee of the NAIC and a member of the IAIS Financial Stability Committee, as well as an advisory member to the Federal Insurance Office (FIO) at the U.S.Treasury.
In February, Connecticut became the first U.S. jurisdiction to join an international agreement established by the IAIS for the purpose of sharing financial data with regulators around the globe through signing a “Multilateral Memorandum of Understanding (MMoU).
To be part of the MMoU, a signatory needs to pass a rigorous review process, according to the IAIS.
Other states can also apply and join, and they have, but they under review so not yet public.
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, it could cause the jurisdiction to be excluded from the MMoU.”
Connecitcut has also become a way station for confidential data flowing through to the IAIS due to a special provision in its state law. The provision gives the Connecticut Insurance Department the authority to pass through the confidential data under a seemingly prescient section 38a-8 (d) of its law, under the “Duties of the Commissioner:”
The commissioner shall maintain, as confidential, any confidential documents or information received from the [NAIC], or the [IAIS], or any documents or information received from state or federal insurance, banking or securities regulators or similar regulators in a foreign country which are confidential in such jurisdictions. The commissioner may share any information, including confidential information, with the National Association of Insurance Commissioners, the International Association of Insurance Supervisors, or state or federal insurance, banking or securities regulators or similar regulators in a foreign country so long as the commissioner determines that such entities agree to maintain the same level of confidentiality in their jurisdiction as is available in this state.
“Connecticut’s leadership has been essential in our efforts to promote effective and globally consistent supervision of the insurance industry and contribute to global financial stability,” stated IAIS Secretary General Yoshihiro Kawai at the bill signing this week. “These new laws are certainly evident of Connecticut’s commitment to strong regulation, particularly of an industry with great global reach.”