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.
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.”