The head of the NAIC is calling for the International Association of Insurance Supervisors (IAIS) to stop its work on a major project and assess it before it goes any further.
NAIC CEO and former Sen. Ben Nelson suggested that ComFrame, a massive IAIS undertaking to create a common framework for the Supervision of Internationally Active Insurance Groups (IAIG) now in draft form, might be headed in a direction that the NAIC no longer accepts or feels comfortable in following.
If there are people on a bus who do not know any longer where that bus is headed, what do you do, he posited. You stop the bus.
Nelson also used the analogy of a neighbor’s fence encroaching on ones property, and the doctrine that one should protest it being built in such a fashion, before it is too late, when the fence is already completed — and then decry it. He spoke in a short interview during the NAIC-sponsored international regulatory conference here in Washington May 9.
Many state regulators have repeatedly expressed concern for the direction ComFrame is headed over the past couple of years, and today, at an NAIC-sponsored international affairs forum.
We have supervisory colleges, insurance core principles (ICPs) all while ComFrame is becoming too prescriptive, too formulaic and too driven by the need for standards, and perhaps capital requirements, noted Connecticut Commissioner Tom Leonardi in comments to a reporter.
“I have been saying this for two or more years, Terri (Vaughan, recent past NAIC CEO) has been saying it, other regulators have been saying it, and its need was questioned in Evan Greenberg’s (CEO of ACE Ltd.) comments today, which I agree with,” Leonardi said.
Leonardi added that the Technical Committee of the IAIS, which oversees the project, doesn’t seem to be hearing the state regulators.
Indeed, Vaughan, who has been involved with the IAIS issues for years, before it gained such prominence, spoke up on ComFrame at the CEOs panel moderated by Leonardi by asking what the goal of ComFrame is. If it’s efficiency, that’s great, she said. In the early days, there was discussion of a level playing field, and now, IAIS “went down the road of creating this massive document” and we are at the point of asking what is its purpose, she said.
State regulators think ComFrame is no longer consistent with how they should be regulated. The project officially began in July 2010. Field testing is planned for early next year.
ComFrame does not have its own legal authority, nor does the IAIS, which is based in Basel, Switzerland, but there will be enormous pressure on the U.S. to implement it once it is finalized.
The next public consultation on the draft for ComFrame is now expected to begin in the third quarter of this year, or by the end of September — pushed back from July to incorporate recent changes,
The IAIS still expects the development phase of ComFrame to end in 2013 and for field testing to begin in 2014. The industry requested observers be included in the ComFrame task force process and is concerned about what is actually involved in field testing.
The IAIS is currently scheduled to formally adopt ComFrame in 2018, with its members to begin implementing ComFrame thereafter.
ComFrame is a “process,” IAIS Secretary General Yoshi Kawai said in April. “In my personal view, 2018 is the first step in the long journey. It is a process, a continuum.”
The IAIS has also begun to explore whether to pursue a global capital standard, including the feasibility and practical challenges of implementing such a standard, which is a different work stream than the ComFrame project, Kawai explained in early April at the NAIC spring national meeting in Houston. Even if IAIS members did develop a global capital standard, it would not affect our work product now, Kawai said. It is still “a very chaotic discussion.” Congress has recently expressed concern about ComFrame, as well.
Chairman of the House Financial Services Subcommittee on Housing and Insurance, Rep. Randy Neugebauer, R-Texas, told Federal Insurance Office (FIO) Director Michael McRaith in late March that he will not welcome a “one-size-fits-all” regime to be placed over U.S. insurance companies solely because they are internationally active and he wants McRaith to stand up to any imposition.
McRaith chairs the Technical Committee of the IAIS and is overseeing the ComFrame project which he has asserted is important.
In remarks made during a conference at the Chicago Federal Reserve Board today, McRaith pointed to his work on ComFrame is an important initiative for advancing the global role of U.S. insurance, along with the ICPs.
Kawai said in an earlier chat that there should be coordination and a common language among the diverse regulatory approaches of countries, as there may be better solutions for a way of supervising and there should be some consistency, too. The ICPs are high-level and do not replace ComFrame objectives, he suggested.
“ComFrame is misunderstood — it is not a capital standard,” he said in response to a panel discussion Thursday where Greenberg spoke on ComFrame boiling down to one method everyone will have to use.
Greenberg responded that, “I hear the words and I hear the intentions, but when he looks at the facts, he concludes that we define framework, comparability quite differently.”
In an early panel at the NAIC conference, European Insurance and Occupational Pensions Authority (EIOPA), alternate Chairman Victor Rod surprised some by acknowledging that the European attempts to update their solvency regime was not finished and not ready, so he wasn’t prepared to tell the U.S. what they should do. U.S. regulators were pleased, because they had been making the same observation for a number of years, conference attendees noted.
Laura Toops reported from the May 9 Chicago Federal Reserve conference for this story