The National Association of Insurance Commissioners (NAIC) is warning against “mission creep” from the federal government, including the Federal Office of Insurance (FIO).
FIO and the NAIC each must remain in their own lane of traffic – FIO must do its own job, “not our job,” said NAIC CEO and former U.S. Sen. Ben Nelson in remarks before state legislators today in Washington.
Nelson spoke to the National Conference of Insurance Legislators (NCOIL) about the importance of all parties playing their role, and cooperating and collaborating as needed.
Both the NAIC and its state regulators, as well as FIO, will serve as the voice for the United States internationally, he said, despite the fact some international supervisors would wish the U.S. have one voice, he said.
Nelson said to reporters later that the NAIC and FIO are engaged in periodic conference calls, which could become formalized, with updates on what FIO is working on internationally.
Nelson said it was important to let people know that FIO is not “step one” in federal insurance regulation in remarks afterward.
FIO’s role internationally is on trade, and it should pursue that to create more jobs here at home and in South America, Nelson said.
It will have to work it out with the United States Trade Representative’s office (USTR), Nelson said. FIO probably shares a “dual lane with the USTR on trade issues,” he said.
FIO is “beginning to understand” that it is not a regulator, Nelson added.
FIO’s Federal Advisory Committee on Insurance (FACI) is meeting at the U.S. Treasury building March 13 where it will hear a broad subcommittee report on Affordability and Availability and the effect of global implications of demographic changes like growing middle class and aging populations – and how the U.S. has not kept pace with these changes, some FACI members feel.
The subcommittee surmised that affordability for U.S. consumers could be negatively impacted by capital requirements imposed on European Union reinsurers, who provide excess lines and catastrophe coverage, under Solvency 2.
Since domestic insurers rely heavily on EU-based professional reinsurers for excess and catastrophe coverage, capital requirements imposed by international regulators could ultimately impact costs to U.S. consumers.
“Regulators come to us when they need us, said Rep. Greg Wren, R-Ala., and NCOIL president-elect. “Maybe you’ll include us in some ridiculous federal advisory committee going forward,” Wren said to a FACI member and state regulator on a panel discussing international issues and FIO. NCOIL has been critical of being left out of the FACI and the process of insurance regulatory law.
Nelson, in remarks to reporters after, termed state regulators his colleagues and “co-equals.”
“We will all be better off doing it together,” he said.
Referring to financial and solvency regulation of insurers and concerns with encroachment and unwelcome, complex standards from the Federal Reserve Board best befitting banks, not insurers (Basel 3) and any intrusion from FIO, Nelson said. “We are not just trying to protect the turf of state insurance regulators, although that is what we are (also) trying to do,” Nelson said.
FACI will also address at its Wednesday morning meeting how group supervision – however that is defined – in the U.S. affects consumers, how the federal government and regulators dealt with Superstorm Sandy.
FIO officials and FACI will also discuss the use of reinsurance captives and special purpose vehicles by life insurers to offload excess reserves, away from regulatory eyes, a situation caused by a static, some say overcautious and outdated, reserving methodology from insurance regulators to free up capital for their other ventures (New York State insurance regulators are themselves investigating this), and of course, work on international supervisory issues like ComFrame (Common Framework for the Supervision of Internationally Active Insurance Groups ) and the potential designation of globally significant insurance institutions (G-SIIs) expected in April, unless it is pushed back.
FIO did not comment, but the NAIC is addressing excess reserves and captives in a special committee and through the adoption of a more modern and flexible principles-based reserving approach, which it hopes enough states will adopt in state legislatures to make it the new reserving system. NAIC officials asked NCOIL representatives to press for PBR/Valuation manual legislation on their states.
Sources said that there are efforts to streamline G-SII with domestic counterparts – non-bank Systemically Important Financial Institutions (SIFIs) to be designated by the U.S. Treasury-led Financial Stability Oversight Council (FSOC) – but large industry participants are concerned with the capital requirements , organization and business reduction restrictions that could be imposed on G-SIIs by the international regulatory community under the International Association of Insurance Supervisors and the Financial Stability Board of the G-20. The FSB is supposed to reduce the moral hazard posed by systemically important financial institutions often termed too big to fail.
Nelson on Transparency
Nelson said he would try and make his work transparent, and would avoid conflicts of interest with his advisory roles and partnerships with two public relations firms he is now with, including one he helped found, along with two colleagues, Omaha-based Heartland Strategy Group LLC last week.
The firms almost certainly won’t have an insurance client, he said, and if they did, he would have no part of talking to them, he told reporters. “If it did come up, it would be easily handled,” he said. “Almost certainly it won’t.”