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Fed to join IAIS to help guide global insurance supervision

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The Federal Reserve Board — sparked by the interest of Gov. Dan Tarullo in ongoing talks of global insurance supervisory standards — is seeking to become one of the many U.S. members of the International Association of Insurance Supervisors (IAIS), according to sources.

The Fed is also said to be negotiating with the National Association of Insurance Commissioners (NAIC) and the Federal Insurance Office (FIO) located within the U.S. Treasury to become a member of the IAIS’ important Executive Committee. 

The Executive Committee currently has three U.S. members, two from the NAIC and one from Treasury’s Federal Insurance Office (FIO). The North American region is limited to five seats on the Executive Committee. Canada and Mexico each have one. It is unclear at this time what role the Fed would play at the committee level, but the math does not support the status quo if the Fed pushes to become an Executive Committee member. 

The Fed is a regulator of insurers or their holding companies, both the ones deemed systemically important financial institutions (SIFI) like AIG and Prudential and the ones that own thrift holding companies like State Farm and TIAA-CREF. So, they can be granted membership pretty much upon a complete application and review.

However, the Fed has concerns and interests of its own. It wants a seat at the table with IAIS, which is based in Basel, Switzerland, and hosts global, multi-tiered meetings.  

People familiar with the concerns say the Fed wants to be on the ground, representing a singular voice for U.S. insurance regulation of global insurers, when standards for group-wide supervision of internationally-active insurance groups are developed. There are ever more pointed discussions about a quantitative capital standard and group supervision and how they are — or will be — tied into the major IAIS initiative, ComFrame, shorthand for the Common Framework for the Supervision of Internationally Active Insurance Groups (IAIGs).  

The IAIS said through a spokesperson that it cannot discuss internal administrative matters, such as whether the Fed (or any authority) has submitted an application. Membership decisions are made at the IAIS general meeting, which will be held in Chinese Taipei in mid-October. However, the Executive Committee can  decide to allow an applicant to provisionally participate in IAIS activities until full membership is granted. 

Some say that the IAIS guiding hand, the G-20s Financial Stability Board (FSB), wants more control over insurance regulatory standards in general — in the name of global financial stability — and that the Federal Reserve is part of that. 

Indeed, the FSB said recently in its review of the U.S. system that U.S. authorities should further enhance insurance group supervision by introducing requirements for consolidated financial reporting for all insurance groups. The state system is not designed to do that, although a state commissioner can set up supervisory colleges — the Fed can wield consolidated supervision, though, and does so with its regulated insurance entities. 

The Treasury Secretary, the Fed and the Securities and Exchange Commission (SEC) chairs are members of the FSB, which mostly consists of banking regulators, although IAIS Secretary General Yoshi Kawai is also a member of the FSB.

At a European supervisory conference at the beginning of the month, Kawai made a statement in support of a suggestion that insurance supervisory coordination could be improved by having a body (in the IAIS, or FSB, it was unclear) that could legally enforce standards or policies. While enforcement standards may be far in the future, it shows the direction the FSB is moving in, according to a meeting attendees.

The FSB has been heavy-handed lately,  according to the NAIC and many in the insurance industry , with its pronouncements of short-comings in the U.S. state regulatory system as it is constructed, and its designation of global systemically important insurers even before the domestic federal oversight designation process had finished with the three U.S. insurers named. Among them, MetLife is still being considered for SIFI status by the financial stability oversight council (FSOC).

A written roundup of recent insurance supervisory events penned by Duane Morris LLC, a New York-based law firm, stated, “The FSB’s Peer Review Report notes that the multiplicity of state regulators, the absence of federal regulatory powers to promote greater regulatory uniformity and the limited rights to preempt state law constrain the ability of the United States to ensure regulatory uniformity in the insurance sector.” 

The Aug. 27, report asserted that U.S. authorities should promote greater regulatory uniformity in the insurance sector by conferring additional powers and resources at the federal level where necessary.

Perhaps the Fed is taking this to heart in joining the IAIS. Insurance industry executives have repeatedly questioned over the past few months  any evidentiary  need for new layers of oversight, standards and policies, and the cost to taxpayers and the policyholders, in the end. 

Nevertheless, the FSB report also said the FIO should enhance its monitoring of the sector through increased use of non-public information, and should be further strengthened to be able to take action to address issues and gaps identified, which it is likely to do in its upcoming financial modernization report, expected out in October. 

Industry participants and others have lamented on the various voices all claiming to represent the the U.S. on insurance: The many state insurance commissioners who toil at the international level, the FIO and its staff and the NAIC staff. The FIO position, created by Dodd-Frank and helmed by Director Michael McRaith, is supposed to serve as the voice of the U.S. internationally, with the NAIC as the voice of state regulation.

McRaith is also chair of the influential IAIS Technical Committee, which is a gatekeeper for IAIS projects. The FIO office has been dogged by criticism from the insurance industry, as well as international projects like ComFrame and the global evaluation of insurer company risk, in which it is involved. FIO gets questioned by these parties through House oversight panels.

The Fed may jockey in and change the dynamics, possibly making the Treasury and the NAIC unsure how to take full measure of the situation. 

Absent from these global supervisory talks is the appointed independent insurance expert, Roy Woodall, who made clear in his dissent of Prudential as a SIFI that he is at a disadvantage to stability discussions because he is not “privy” to the international regulatory talks, as he is not a regulator. Because the presidentially-appointed position is not that of a regulator, it would need a special by-law change and approval to join the IAIS. 

The U.S. members of the IAIS Executive Committee are McRaith, Florida Commissioner Kevin McCarty, who is co-vice chair of the Executive Committee, and Connecticut Insurance Commissioner Tom Leonardi. 

The inclusion of more U.S. regulatory members or groups could spur other countries to offer more of their supervisory officials a seat at the IAIS table as well, it has been suggested. But will it be a benefit?

The Fed, Treasury, and the NAIC and various commissioners did not comment for this article or were not immediately available for comment.


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