At NAIC Meeting, Insurance Companies, Groups Call for Flexibility in Global Capital Standard
August 17, 2014 by Thomas Harman
LOUISVILLE, Ky. – Major U.S. insurance companies and trade groups want more flexibility in the development of a capital standard, with one company going so far as to propose a U.S. national standard as an alternative to proposals made by international groups.
The concerns were addressed at the National Association of Insurance Commissioners’ Summer National Meeting during a special NAIC International Capital Standards Forum.
The concerns stem from the moves by the International Association of Insurance Supervisors’ to develop the Common Framework for the Supervision of Internationally Active Insurance Groups as a framework for such groups’ supervision. The IAIS is proposing a risk-based global insurance capital standard for the insurance groups as part of ComFrame.
The IAIS has been accepting public comment period on proposed basic capital requirements that currently would apply to the nine global systemically important insurers, with a final version of the plan to be released in November. That is to be the first of a three-part process to ultimately end up with risk-based group-wide global capital standards. The second step is development of the higher loss absorbency requirements for GSIIs, due some time in 2015. The full standard is scheduled to be completed by the end of 2016 with application to begin in 2019 (Best’s News Service, July 9, 2014).
At the forum, calls were made by individual insurers and trade groups for more flexibility in any standard than what the IAIS is currently proposing.
Joe Sieverling, senior vice president and director of financial services at the Reinsurance Association of America, told the panel the IAIS plan provides a too-strict comparability across jurisdictions with financial stability applied to systemically important entities as the goal. The result, he told Best’s News Service, would be a regime that would be very costly. A much more general approach is necessary, he said. “If the IAIS is willing to do this, I think the world could converge around a more flexible [international capital standard],” he said.
Jeffery Alton, vice president of financial regulation and capital analysis at CNA Financial, called for creation of a national capital standard that would impact U.S. companies only and have separate approaches for life insurance and all non-life insurance.
Alton called on the NAIC and the federal agencies involved in discussions to work toward a consistent national message when discussing the development of the global capital standard. “I think for us to be effective, we’ve got to have something that we can all advocate,” he said.
Pooja Rahman, a vice president at the New York Life Insurance Co., said the international capital standard as proposed would create a less-stable financial system. She said the IAIS’ focus on attempting to provide financial stability by ensuring adequate capital is on hand is misguided. “The solution implies that there was a problem in the financial crisis caused by inadequate capital,” she said. “We don’t agree.”
Michelle Rogers, director of financial and regulatory policy with the National Association of Mutual Insurance Companies, told the panel the standard would restrict the capital available and create hardship when the capital is needed.
Nicole Allen, a senior vice president and state regulatory officer at Swiss Re, said while her company believes a global capital standard is coming, it must fit the systems used in all nations. “I’m not suggesting there will be any favored regulatory system,” she said. “The [international capital standard] should be designed to work with all systems.” Furthermore, she said there would be no overthrow of the U.S. state-based system. However, any standard developed should not contain a requirement that companies should have to add more capital.
Liz Brill of the American Academy of Actuaries told the panel the regulatory and accounting differences between the IAIS plan and what is done domestically make any global standard a challenge. “At the end of the day, it’s important to remember that no approach is perfect,” she said.
NAIC Vice President Michael Consedine said he wanted the forum to be first of a series of discussions on the topic. “We need a plan and we need a voice at the table that’s heard loud and clear,” he said. “This is a good opportunity to work with the [Federal Reserve] and the [Federal Insurance Office] to come up with an appropriate plan.” He said there is already a wealth of good ideas on the table. “It’s just a question of us coordinating the work that we’ve already done,” he said.
