During the Thursday hearing, the Subcommittee of Housing and Insurance of the House Financial Services Committee heard testimony from NAIC CEO Ben Nelson, Federal Insurance Office Director Michael McRaith, and the insurance expert on the U.S Financial Stability Oversight Council (FSOC) Roy Woodall, on other industry concerns – namely ComFrame, captives and G-SII.
Nelson expressed that one of the NAIC’s biggest concerns with the IAIS project of ComFrame, a common framework for supervision of global insurers, is that it seems to be based on a bank-centric, Euro-centric approach. He also said earlier in the question and answer period that he believes ComFrame has become overly prescriptive in nature.
Subcommittee Vice Chair Blaine Luetkemeyer, R-Mo., asked McRaith if international standards will be forced on the United States industry, where, he said, we have a model that is working, that was not a problem in 2008 and that is “not a problem today.”
By design, the ComFrame will be outcome based, McRaith assured the subcommittee. The question then becomes, how do we achieve these outcomes, and this is where state regulators and Congress can push back, McRaith explained.
Nelson, who has repeatedly urged FIO to stay in its lane, said he wants to see a cost analysis of ComFrame before field testing begins next year.
“I would like to know what something will cost before we test it,” Nelson said.
McRaith said the costs and benefits of ComFrame will be examined during the testing phase, which will continue for several years.
The insurance standards overseers were also questioned by subcommittee Chairman Randy Neugebauer, R-Texas, about the New York Department of Financial Services (DFS) report released last week on captive reinsurance as a shadow insurance industry that is falsely inflating life insurers risk-based capital and potentially thought to be imperiling the solvency of companies through a shell game with captive subsidiaries.
“Do states have a handle on the captives?” Neugebauer asked.
New York’s action illustrates that this is an issue of importance, and the states are engaged, as regulators, and FIO is monitoring this, McRaith told the Subcommittee. He added that they are working in an appropriate and uniform way to bring some uniformity to this issue, and the industry is working to bring some closure on this issue.
Nelson said that the implementation of principles-based reserving (PBR) will be one of the important tools to match reserve requirements, and the commissioners of the NAIC are working hard to resolve the issue. He did not say whether the NAIC is considering a moratorium on captive insurance, as the New York DFS has recommended.
Woodall said he met with companies who do it, who are on both ends of spectrum in terms of their use of captive subsidiaries to hold reserves, and has met with New York Superintendent Ben Lawsky on this issue, and if FSOC needs to make some kind of recommendation it will, he says. But the states have a process underway, he explained to the subcommittee.
The lawmakers also dove into the global systemically important insurers (G-SII) designations expected soon from the G-20s Financial Stability Board (FSB). They said they were worried that more IAIS standards would come attached with this crop of G-SIIs.