The National Association of Insurance Commissioners (NAIC) said it has serious concerns about the timing, necessity and complexity of developing a risk-based global insurance capital standard (ICS) given legal and regulatory differences around the globe, but that it intends to stay in the process, not resist it.
The ICS are to be included within ComFrame, the project begun in 2010 by the International Association of Insurance Supervisors (IAIS.)
The state regulatory statement said the NAIC will be mindful of the cost/benefit of the proposed standards, the impact on product availability and affordability or other market impacts, and the compatibility of any standards with the U.S insurance regulatory system.
To be sure, some in the U.S. insurance industry are concerned about the shape, content, rules and style in which any standards would be crafted and applied, including the possibility of driving up costs and exiting of markets if a great deal more capital is required to be held by insurance companies at any level.
The NAIC declared its views in a new document discussed during the NAIC Winter National Meeting here in Washington this weekend.
The ICS for internationally active insurance groups — which are not solely global systemically important insurers, but companies doing business in multiple countries — ”should be developed as something in addition to jurisdictional capital requirements,” stated the NAIC document.
“For the US, it would be in addition to the U.S. risk-based capital (RBC) that applies at the legal entity level; we do not intend for RBC to be replaced by any new group capital rules but rather augment our existing approach.”
The NAIC is concerned with what it sees as an assumption that capital can be freely moved within an insurance group. It is critical, said the NAIC, that the free flow of capital across a group should not jeopardize the financial strength of any insurer in the group. Whatever is implemented at the group level should be in addition to jurisdictional capital requirements — in the US in addition to the RBC that applies at the legal entity level, the NAIC document asserts.
The request of the G-20‘s Financial Stability Board (FSB) to the IAIS is accepted but not seen as a positive element by all.
The landmark Solvency II, with its risk-based supervision requirements, which is now going to be a reality in Europe after 13 years, also is expected to shape the ICS development by the IAIS.