Members of the U.S. and European insurance communities are hoping to bridge the supervisory divide between the two regions with the EU-U.S. Dialogue Project, but more work needs to be done to make it more forward-looking and inclusive of some overlooked elements, many said.
Still, the state regulatory community and U.S. industry warmly embraced the non-judgmental and respectful tone for each regime and the scope of the project, calling it historic, a “milestone in the history of insurance regulation,” and generally praising the work done so far, more so than on any other international work stream. The draft compares and catalogues aspects of the insurance supervisory and regulatory regimes in the European Union and the United States.
Many in the U.K. insurance/reinsurance industry, judging from comments made at a hearing Friday, would like the U.S. states to move a little faster on adoption of the Credit for Reinsurance Model Act, and generally making reinsurance nondiscriminatory in terms of collateral required from non-U.S. insurers.
McRaith, director of FIO, who chaired the dialogue, at times asked if anything was missed and what others thought about the direction the project should take in its second phase. It is expected discussions will lead to policy decisions by their respective organizations regarding whether and how to achieve further harmonization in regulation and supervision.
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But, first, some elements, it was pointed out, were indeed left out or overlooked in the document, which some involved expected to be included as the draft is developed. It is in a consultation period now.
The most glaring oversights in the catalogue of the U.S. system included no real mention of the Federal Reserve’s power of consolidated supervision of insurers deemed systemically important or insurers that have thrift holding companies or banks, or of the Federal Insurance Office’s (FIO) actual powers. The Fed is not so much on the sidelines but is busy thinking about these issues.
The report fails to discuss the Dodd-Frank enhanced prudential regulatory standards that would apply to non-bank SIFIs [systemically important financial institutions], and the Dodd-Frank provisions aimed at identifying and reining in industry-wide practices that may present systemic risk, pointed out Stef Zielezienski, general counsel of the American Insurance Association (AIA).
Contributions to the draft by the steering committee were made by many regulatory or supervisory officials. FIO had five people represented, the states and NAIC had about 26, and European representatives from individual countries or the European Insurance and Occupational Pensions Authority (EIOPA) had almost 30, so representatives from the Atlantic were about equally divided.
FIO’s pre-emption powers, which include the ability to recommend changes to the state system of insurance regulation and preempt certain state insurance laws, are either not enumerated in the report, or are mentioned as monitoring, identifying and interacting.
The Dodd-Frank Act gave FIO broad authority, including authority to coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters.
AIA’s Zielezienski noted other areas where he believes the section on group supervision seems to understate or, in some cases, omit elements of the U.S. framework, including not giving enough props to state regulation in looking at solvency regulation that applies across state boundaries to groups, including the use of market discipline, public ratings, financial reports, hazardous financial condition statutes and financial examinations, and doesn’t note the long history of state insurance regulatory cooperation in the U.S., among other things.
The AIA executive did stress that more cooperation is needed in supporting efforts throughout the country to “swiftly adopt the amended NAIC credit for reinsurance model.”