Leonardi, NAIC slam FSB report on U.S. insurance system

“Why go from a system that works and go to one that has failed? It is totally illogical,” Leonardi said. “The other thing is that you have people from the European Union trying to analyze the U.S. That is like a Yankee fan selected to judge the Red Sox.”

The FSB report was prepared by a team chaired by a member from the Deutsche Bundesbank with representatives from the Swiss National Bank, the Japan Financial Services Agency, the EU, the European Systemic Risk Board Secretariat, the Bank of Canada, the Insurance Regulatory and Development Authority of India and others from the FSB who oversee banks. 

Stateside, Leonardi was not happy with a U.S. FSB member — the U.S. Treasury.

The commissioner was appalled that the Treasury did not seem to back the state system. “I would hold up our insurance regulatory system against any system in the world,” Leonardi said. And yet, our “own Treasury is not supporting the state-system,” he added, referring to Treasury’s statement on the report.

“I am disappointed that the U.S. Treasury did not recognize the inherent flaws in the report and the unsubstantiated nature of the report’s conclusions,” Leonardi said. 

The comment Treasury made on the report two days ago was: “As a member of the FSB, we welcome the evaluation of our financial sector policies by an independent international body. We agree with the findings that the establishment of the Financial Stability Oversight Council (FSOC), the Office of Financial Research and the Federal Insurance Office (FIO) represent important steps to enhance the stability of the financial system.”  

The FSB report called for bolstering the role of FIO and imposing a more uniform regime.

“The U.S. authorities should carefully consider and provide recommendations to Congress as to whether migration towards a more federal and streamlined structure may be a more effective means of achieving greater regulatory uniformity,” the report stated. Insurance regulators said they got a heads up on the report only a day before it was released to the public, and while the NAIC summer meeting was in session, Aug. 26.

“Moreover, the FIO’s current human resources may need to be augmented to fully address the tasks that it has been mandated under DFA. The FIO should also enhance its monitoring of the insurance sector through greater use of non-public information that it is able to access, and be given more resources and powers to be able to address issues and gaps that it identifies,” the report stated. It raised eyebrows among some in the insurance sector for the strength of its language, whether they agreed with it or not, and by the fact that an international body was basically telling a U.S. agency, the Treasury, to staff up. 

The industry also expressed grave concern for the tone of the FSB’s global team’s findings, with the Property Casualty Insurers Association of America (PCI) noting, “it may not like our state-based system, not because it is ineffective, but because it is different.” 

The report found that “state authorities have taken useful steps to improve insurance group supervision; to modernize solvency requirements; and to improve disclosures required for securities lending operations by insurance companies,” but this is clearly not enough.

The FSB has become the new bogeyman for the U.S. insurance sector, regulators and industry alike. In another move, FSB is trying to impose insolvency resolution schemes on global critically important insurers, they say, a new classification that some find goes outside of the scope of what the global community set out to do.

For example, the FSB stated that “insurance companies, insurance groups and insurance conglomerates, including reinsurance companies and reinsurance groups that could be systemically significant or critical if they fail, therefore should be subject to resolution regimes that meet global standards” in the Aug. 28 release of its Assessment Methodology for Key Attributes of Effective Resolution Regimes for Financial Institutions.