DC Insurance Commissioner White: New Solvency Assessments Set for 'Field Tests'
February 21, 2013 by N/A
WASHINGTON – U.S. insurance regulators hope to “field test” new comprehensive solvency assessments later this year to help advance international negotiations over how to properly regulate large, multi-national companies, Washington, D.C. Insurance, Securities and Banking Commissioner William White told Best’s News Service.
White said the field tests aim to see how solvency assessments developed after the 2008 financial crisis will work within an evolving international regulatory landscape. He did not set a specific date for when the field testing would begin, but said he expects it to start before the end of 2013.
White has been a prominent figure in negotiations between U.S. and EU regulators about how to integrate two fundamentally different regulatory systems. He serves as a member of the Federal Advisory Committee on Insurance under the Federal Insurance Office and as vice-chairman of the National Association of Insurance Commissioners’ International Insurance Committee.
As it stands now, international oversight of insurer solvency is led by supervisory colleges, groups of regulators from the United States, European Union and other jurisdictions. However, because the United States and European Union approach regulation from vastly different starting points, companies doing business in both regions have forced regulators to find a way to resolve those differences.
The European Union employs a top-down regulatory system in which large insurance groups with global books of business would be governed by a single regulatory college. The United States, of course, has a system led by individual states in which each subsidiary of a groups is governed by regulators from the jurisdiction where it is domiciled.
U.S. regulators, including White, are working with members of the International Association of Insurance Supervisors to create a common framework for regulating insurance companies doing business on both sides of the Atlantic Ocean.
But progress on the “Common Framework for the Supervision of Internationally Active Insurance Groups,” or ComFrame, has stalled as regulators struggle to bring the two systems in line with each other. One issue that has divided regulators has been whether to enact an international capital standard. Regulators in Europe support a common global approach, whereas U.S. regulators have argued for standards to be set at the subsidiary level by local regulators.
White said field testing the solvency assessments may allow regulators to know whether they are getting the information they need to answer those questions.
“We want to make sure that we are looking at really comprehensive risk profiles from a very broad standpoint,” White said. “For the most part, I think we have been able to capture most of the real concerns about risk there. But putting those into a regulatory framework to really test the solvency of a particular group is something we have not yet done.”
Among the issues White said regulators will have to consider as they develop a model for the field tests is how to balance the goal of gathering information efficiently with the need for strict confidentiality.
“We have to make sure we’re able to protect the confidentiality of the companies and the information that they provide because you’re looking at a number of supervisors or regulators who are going to be looking at this information,” White said. “A lot of our effort has been spent on making sure we can ensure that and do it in a way where the company can still be forthcoming with the information.”
Regulators also face questions about how prescriptive the international insurance regulatory regime needs to be in a post-financial crisis world, White said. Some regulators have called for explicit rules and standards that White said “point to a single way of doing things.”
Taking that approach may not work as well as an “outcomes-based” system in which regulations focus on achieving desired results and not on adhering to strict standards, White said. “That’s my own view and the view of most U.S. regulators.”
As negotiations move forward, the insurance community will continue to watch the developing role of the FIO. The office was created two years ago by the Dodd-Frank financial reform act and it is still finding its place in the global insurance marketplace.
FIO and its director Michael McRaith have drawn praise from insurance regulators and from the industry for playing a “positive” role in advocating on behalf of the U.S. regulatory system. McRaith chairs the IAIS Technical Committee, the organization’s influential policy-development arm.
“What is important here is that this is a new relationship,” White said. “Everyone understands that we operate with a state-based insurance regulatory framework. The FIO was put together really to bring this all into a single area so we can speak with a fairly comprehensive voice when we’re talking about things on an international basis.”
White said the NAIC serves an important role on the international stage by allowing state regulators to reach a consensus on policy positions and pass those positions to FIO. “So when Michael McRaith speaks on behalf of the United States where appropriate to international regulators, he is speaking from a very strong position.”
FIO is overseen by the Treasury Department. It does not have regulatory authority but serves as an information-gathering agency for Congress and Treasury on trends in the insurance industry. The office is also charged with identifying systemic risks to the U.S. financial system posed by the insurance industry and with developing federal policy on international insurance matters, giving it significant influence on insurance regulation in the United States and overseas.
Recently, FIO has played a key role in discussions with the International Association of Insurance Supervisors over how to integrate the U.S. regulatory system with the new Solvency II regulatory framework being implemented in the European Union (Best’s News Service, Dec. 24, 2012).
