With ComFrame 'adrift,' discussion is centered on capital standards at IAIS meeting

The NAIC and U.S. insurers joined sovereign nations and other parties weighing in on the 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 August 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. The FIO did not submit comments to the IAIS on the ComFrame draft.

Philippe Brahin, head of governmental affairs at Swiss Re, noted that a mosaic of regulatory regimes need to be harmonized. “ComFrame is very ambitious and the timeframe is quite short,” he said.

Nicholas D. Latrenta, general counsel of MetLife, said on the panel that “the successful implementation of ComFrame is going to be vital for the smooth functioning of these groups in the future.” What the IAIS is doing (under the charge of the G-20), he said, “is very complex, very critical and very controversial—harmonizing the regulatory thrusts of the major insurance sectors is important but its complexity can’t be undersold. The choices have consequences. Should they be prescriptive or guidelines?”

Latrenta, whose company is likely subject to be designated systemically important and internationally active by domestic and international bodies, stressed that insurance companies are different from banks, and even each other across the different lines from life to property to health, emphasizing that one set of standards certainly won’t suit everyone.

Because capital standards are so challenging, Brahin said, there might be a need to field test this project.”

ComFrame is still in draft form, and won’t be ready until the end of next year. There is still a lot of discussion determining its substance. Most insurers want to focus on cooperation and coordination but don’t want specific metrics to measure them, and are concerned about being identified as internationally active. It was first introduced in the summer of 2010.

You could end up with a huge, unlevel playing field, Brahin, of Swiss Re, said.

“You have Solvency II, the [NAIC’s} Solvency Modernization Initiative developing and so forth, all of these are still underway and there we are trying to develop a global standard—we need a field test to get to the right calibration,” Brahin said.

McCarty noted a previous discussion where it would take, say, five years to develop capital standards and another five years to implement them, but said a robust debate, as is happening now, is what is good for all layers now.

On a subsequent IAIS panel addressing frontline regulators and their roles, Ernst Csiszar, a business professor at University of South Carolina turned the supervision discussion on its head by noting that “we are all fighting the last war.” He said aside from clamping down on risk, which has its own consequences of inhibiting innovation, there is a shift from solvency measurements to a risk management type of system requiring new kinds of tools—not just old metrics and ratios but the experience and judgment of those in the industry. Csiszar said he was fearful of new skills the regulators are going to need, which won’t just be a checklist for risk measurement.