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Life Health > Health Insurance > Your Practice

NAIC says international capital standards won't replace state RBC regime

By Elizabeth D. Festa

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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. 

To that, Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA) spoke at the NAIC’s International Insurance Relations Committee meeting Dec. 15, in what Connecticut Insurance Commissioner Tom Leonardi called a “tour de force” speech. Bernadino said it would a shame if regulators around the world did not work together to make it happen or tried to prevent a capital standard that makes sense for insurance.

If the IAIS doesn’t do it, the FSB made clear it would move in and do so, Bernardino confirmed afterwards. 

He said that the ICS will not and should not mirror Solvency II, but should have principles of risk-based regulation, consistent valuation and a clear calibration of the risk. 

“We need an internationally common language, he said. In the U.S., RBC created that trust between regulators statewide, Bernardino said. The global capital standard will create a similar trust between country regulators, he concluded. 

There may be trust developing, but between U.S. regulators and the European supervisors, at least, things are still a bit tense.

At the end of the meeting, Doug Barnert of Barnert Global Ltd., representing insurance clients, took the floor over Committee objections on time. Barnert said that he took offense at Bernardino referring to a description of the IAIS meetings having a circus-like atmosphere, having worked as an observer with the IAIS for at least a decade. 

The industry fears that the new restructuring proposal of the IAIS will shut out observers — both industry and consumers, as well as other non-regulatory stakeholders — during policy-decisive working meetings which would feature hand-selected experts behind closed door meetings. They complained during the International Committee that they feared a lack of transparency with the new way the IAIS will structure meetings. 

The IAIS is trying to become more efficient and may be considering webinars and video calls to work on policy matters with members and observers.  

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