The National Association of Insurance Commissioners (NAIC) says it likes the deal “Team USA” negotiators have hammered out with the International Association of Insurance Supervisors (IAIS) over how the world’s financial services regulators will supervise insurer financial strength.
The U.S. Treasury Department’s Federal Insurance Office (FIO) says it’s already filed an official objection to the newly approved IAIS insurance capital assessment approach, Insurance Capital Standard Version 2.0 (ICS Version 2.0).
ICS Version 2.0 could create a global equivalent of the U.S. risk-based capital method for deciding whether insurers have enough of the right kinds of financial resources to make good on their benefits promises. U.S. regulators, for example, already reward insurers for holding highly rated bonds, rather than holding low-rated bonds that pay higher interest rates.
But U.S. insurers and regulators have argued that the ICS Version 2.0 would punish insurers’ too much for holding long-duration assets, and push insurers to take a short-term approach to investing that would interfere with long-term risk management. ICS Version 2.0 critics say adopting the standard in the United States would make writing long-duration products, such as life insurance and annuities, much more difficult.
IAIS members adopted ICS Version 2.0 Thursday, at an IAIS meeting in Abu Dhabi. ICS Version 20 calls for world regulators to conduct a five-year test of a new method for assessing whether insurers have enough resources to pay the promised benefits, then adjust the method and implement the adjusted version. The IAIS has also said that it will look at the alternative the U.S. insurance community supports, the Aggregation Method, and think about letting the United States and other jurisdictions treat the Aggregation Method as an approach that’s an acceptable alternative to ICS Version 2.0.
The NAIC Reaction
The NAIC said Thursday, in an announcement concerning the deal, that it thinks the IAIS will now give the Aggregation Method a thorough assessment.
“State regulator support came after the IAIS agreed to significant changes,” the NAIC said.
The IAIS now agreed to a definition for determining whether the Aggregation Method and ICS Version 2.0 produce comparable regulatory outcomes, and a timeline for seeing how ICS Version 2.0 works, the NAIC said.
NAIC President Eric Cioppa noted that, even though U.S. state regulators will not implement ICS Version 2.0, they do want to come up with insurance organization capital analysis approach that will produce comparable results.