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Life Health > Life Insurance

State regulators concerned about FSB incursions on IAIS

By Elizabeth D. Festa

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The National Association of Insurance Commissioners’s (NAIC) lead regulators on international supervisory issues expressed growing frustration with the actions of the G-20’s Financial Stability Board (FSB), venting the opinion that FSB is now basically puppeteering the International Association of Insurance Supervisors (IAIS) and inflicting its own bank-centric standards on insurers.

Regulators complained in an open session, at the NAIC summer meeting in Indianapolis, that the FSB is intruding on the ComFrame process and telling IAIS what to do, and have tossed in (without discussion among the IAIS) a requirement for a new quantitative capital standard for internationally active insurance groups (IAIGs).

A representative from the IAIS, its Deputy Secretary General George Brady, also a former NAIC official, was called to the International Insurance Relations (G) Committee to answer questions from former colleagues on what the FSB was up to and what the IAIS plans were in regard to these requests.

Brady demurred on all questions. “I have no answer to that,” he responded more than once.

The IAIS has been told to come up with a work plan by the FSB for this new quantitative standard by October. Before the directive, discussion was to take place by the IAIS members and industry observers on whether a standard was even necessary. The July 18 FSB release on global systemically important insurers (G-SIIs) made it clear one was going forward.

A draft of the work-plan released in the past week or so is circulating now but is not available to anyone but the IAIS executive committee. 

Tom Leonardi“I think the IAIS runs a great risk of losing its stature,” and becoming an “afterthought,” said G Committee Chair and Connecticut Insurance Commissioner Tom Leonardi (right), a member of the executive committee with NAIC immediate past president Kevin McCarty, Florida’s insurance commissioner. 

“We are running the risk of potentially losing control over our standard-setting,” McCarty said at the committee session. McCarty stressed that the IAIS needs to remain independent, and not be dictated to by the FSB.

“I fear,” said Leonardi, that the “IAIS is losing its gravitas.” ComFrame, the Common Framework for the Supervision of IAIGs, project began in earnest in 2010, and FSB members are  looking at regulation — insurance and banking, under the same agency in many countries — through a financial stability prism.

Still, NAIC members were not happy.

In a general NAIC press conference, NAIC President Jim Donelon called the FSB’s actions an “end-run” around insurance supervision standard setting. 

Leonardi also objected to the FSB’s G-SII designations made July 18, calling them premature. “It is like throwing darts at a dartboard to see where they land to find out where the cut off should be,” with regard to what makes a G-SII, the Connecticut regulator, who is active in supervisory colleges, said. 

NAIC CEO Sen. Ben Nelson said afterward that it is up to the IAIS, first, to work things out with the FSB. He did not rule out an overture by the NAIC to FSB’s U.S. members at the Federal Reserve and the U.S. Treasury.

The Securities and Exchange Commission (SEC) chair also sits on the FSB but Fed Board Gov. Daniel Tarullo chairs the FSB’s key stability committee. ComFrame began as a way to develop methods of operating group-wide supervision of IIAIGs to make it more effective and more reflective of actual business practices. It was also put in place to establish a comprehensive framework for supervisors to address group-wide activities and foster global convergence of regulatory and supervisory measures and approaches.

The life and property/casualty industry also expressed frustration with what it called a closed process, a lack of answers and a fear that major policy changes are happening with input at all levels of global supervision, including field testing for ComFrame.

“This is just getting worse and worse,” said CNA Global Regulatory Policy and Affairs VP Jeffery Alton. “It is like the U.S. has a bull’s eye on its back and can’t comment and can’t get in,” he said to the G Committee. 

Lest the FSB do everything for the insurance industry, the American Council of Life Insurers (ACLI) is working on its own draft principles on internal economic capital models, which could be useful in the evolution of ComFrame.  

“We have learned that the FSB may call for applying additional requirements, including additional capital, on G-SIIs,” stated ACLI Director, International and Insurance Regulation Lauren Scott. “A core concern among all of these proposals is that bank-centric capital standards might be applied to the business of insurance. Another concern is that new capital standards might be applied to some insurers but not others. 

As it is a weekend meeting, the Federal Reserve, FSB and Treasury were not able to return inquiries on the FSB role collectively or individually.

Protocol would have IAIS Executive Committee members like McCarty and Leonardi take their concerns to the IAIS leadership that attend the FSB meetings, like IAIS Secretary General Yoshi Kawai.

IAIS executive board  members reportedly saw the FSB language for the IAIGs and approved it in June.  

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