My, that's a lot of comments (AP Photo/Vadim Ghirda, file photo)

The ComFrame (International Association of Insurance Supervisors (IAIS)’s Common Framework for the Supervision of Internationally Active Insurance Groups) draft comments are now in, and interested parties or “observers” had lots to say about the new draft in terms of governance, flexibility, and the definition of what is an internationally active insurance group (IAIG). 

The NAIC and U.S. insurers are joining sovereign nations and other parties weighing in on a supervisory architecture that will have a great deal of impact on the global regulation of anywhere from 50 to 100 IAIGs expected to be identified worldwide. The IAIS released the working draft for comment on July 2, 2012  for a two month public comment period that ended Aug. 31. The 2012 ComFrame Draft marks the completion of the second step in its three-year development phase ending less than a year from now.

ComFrame is a framework for the group-wide supervision of IAIGs that began development in July 2010. It is meant to provide a framework consisting of basic standards for IAIGs and a process for supervisors to comprehensively address the risks arising in IAIGs that may have many different roots. Both the requirements and the process touch on governance and risk management, structure and strategy as well as financial conditions.  

However, it may be hard to define it more accurately given the draft and the comments.

To wit, “ComFrame has an identity crisis–it is not clear whether ComFrame is a framework to provide greater consistency and cooperation among supervisors who supervise IAIGs or whether it is attempting to create an entirely new regulatory regime applicable to IAIGs,” ACE Group let the IAIS know as part of its feedback.  

“The introductory remarks to ComFrame state that ‘the IAIS aims to develop methods of operating group-wide supervision of IAIGs in order to make group supervision more effective, to establish a comprehensive framework for supervisors to address group-wide activities and risks and also to set grounds for better supervisory cooperation as well as to foster global convergence of regulatory and supervisory measures and approaches”. Ace supports these goals to establish more consistent approaches to the supervision of IAIGs and more coordinated activities by our global supervisors. However Module 2 is directed at IAIGs and seems to be substituting regulatory requirements for the judgment of management regarding how to operate an insurance group. The elements of Module 2 should be re-cast as guidance to supervisors regarding the supervision of IAIGs,” ACE Group suggested.

Prudential Financial spoke strongly of the concerns of many companies involved in the U.S. insurance industry when it said that the “overall tone and text of the modules continues to be overly prescriptive, and appears to envision a new and additional regulatory regime for IAIG’s.”

Added the Property Casualty Insurances Association of America (PCI), “the concepts of “group-wide underwriting policy, group-wide claims settlement policy, etc., do not work for groups that operate in jurisdictions with different legal systems and market conditions. Further, they do not work for groups in which subsidiary insurers operate under independent managements.”

PCI called for declarative revisions to ComFrame that would “once and for all clarify the core tenets of the framework and will hopefully go a long way towards alleviating any future concerns over the level of prescription in ComFrame.”

The NAIC and others are looking for flexibility and criteria for what constitutes an IAIG.

“The criteria used to identify IAIGs should be clear and focused on identifying those entities which have a large presence internationally. The criteria should be simple and allow the involved supervisors to adjust using their judgment if circumstances necessitate a different answer (‘constrained supervisory discretion’),” the NAIC stated.

With respect to the current draft, consideration should be given as to whether the criteria for the number of jurisdictions in which an IAIG operates should include threshold percentage of market share,” the NAIC said.

MetLife was more specific. It suggested that the ComFrame criteria should be narrowed by, for example, increasing- the number of countries in which premiums are written to seven-percentage total gross premiums written outside home jurisdiction to not less than 20% of the group’s total gross premium written globally, and – total assets to not less than $100 billion, or annual gross written premiums of not less than $20 billion globally.

Currently, many jurisdictions feel the threshold is too low, making insurers that operate in as little as three countries, even those in Europe, an IAIG.  

The NAIC also said there is still some inconsistency within the material regarding the flexibility allowed in meeting group governance expectations.

“ComFrame should allow an IAIG the flexibility to structure corporate governance functions and processes in a manner that best suits the specific needs of the IAIG,” the NAIC urged.

“The objectives of a group-wide corporate governance framework are to ensure that systems, policies and procedures are in place to effectively and efficiently provide for sound management and oversight of a group’s business. An IAIG’s corporate governance framework should take into account and manage specific and/or additional risks to which it may be exposed due to its international activities,” the NAIC said.

MetLife said that the that ComFrame should be reworded to recognize the oversight role of boards in many jurisdictions and the need for greater flexibility in group-wide governance, internal control and risk management policies. “The draft assumes a role for the Board that is inconsistent with the authority granted to Boards in the US. This is a major issue. In many countries, including the U.S., boards play an oversight role and do not have day-to-day management responsibility for the business, which is the responsibility of senior management,” MetLife pointed out.

Northwestern Mutual was vocal, as well, on the whole enterprise of ComFrame.

“We believe it is critical that the criteria and process for identifying IAIGs provide companies and regulators with greater certainty as to which companies are subject to ComFrame and which are not,” the Wisconsin company stated.

“We therefore make two suggestions. First, ComFrame should establish a transitional period for companies entering and exiting IAIG status. For example, a company may need to meet the IAIG criteria for three consecutive years before becoming subject to ComFrame, and may need to remain outside the criteria for at least one year before exiting. … Second, the international activity criteria should be clarified to mean that the group has entities or branches that are authorized to write new business in the specified number of jurisdictions rather than collection of premium from policy owners moving to other countries where the group does not have a licensed branch entity.  

The requirement that an IAIG has to maintain “going and gone concern” contingency plans and procedures may be of little value in the event of an actual crisis, said Northwestern Mutual. “ComFrame should instead focus on developing the connections between involved supervisors of an IAIG pre-crisis so that they are prepared to work together in the event of an actual crisis”

The NAIC said that ComFrame should not be duplicating processes (at the holding company level) that already exist at the operating level.  The draft is unclear if the IAIG (i.e., the holding company) is the one that maintains a group-wide underwriting policy and a group-wide claims management policy, or if it’s to ensure that the group’s underwriting policy and claims management policy covers group- wide activities. 

“It is inappropriate for regulators to dictate governance practices to an IAIG, even more so practices that do not recognize the validity and flexibility of existing best practices adopted by organizations such as the Securities and Exchange Commission, NYSE and NASDAQ. Companies should be permitted to operate differently, which is what separates them in the marketplace,” said a consortium of insurance international associations, including the American Council of Life Insurers (ACLI) and the American Insurance Association and the Reinsurance Association of America.

“The current draft appears to favor a centralized approach to group operations and management, which will not be the model followed by all IAIGs.

ComFrame needs to be flexible in its approach to IAIGs, as actual enterprise risk management practices will continue to evolve and there are dynamics within the industry that are not predictable. Recognizing that not all IAIGs face the same risks, the key is for supervisors to understand the risks and know what IAIGs are doing to address them,” the domestic and foreign insurance groups said. 

ComFrame is due to be concluded by the end of June 2013, but IAIS does not talk about when it will be put into effect. 

“We and others have mentioned a phase -in period ,” said Brad Smith, chief international official for the ACLI. “You can’t expect 100 supervisory colleges at the end of the month, (once ComFrame is is complete in June). ” Smith explained an immediate need  for a huge increase in state expenditures for 100 supervisory colleges right away, not to mention many other resource hurdles, if ComFrame’s requirements were expected to take effect immediately.

“We are urging them to realize that July 1, 2013, shouldn’t be a hard deadline, said Smith, who has been working on international insurance supervisory issues for decades.

MetLife said it would support a phase-in of ComFrame that could consist of a “dry run” over a period of five years, which would allow groups and supervisors to better understand the practical implications of ComFrame and make necessary adjustments so that it achieves its aim of reflecting actual practices.

The National Bank of Belgium was one of the only parties okay with much of the draft as is. “The ComFrame criteria and process for identifying IAIGs are appropriate,” it stated.