FSOC’s Insurance Rep: Global Standards Have ‘Gone Too Far’
WASHINGTON //BestWire// - The insurance representative on the Financial Stability Oversight Council testified that efforts to enact capital standards for globally active insurance companies may have gone too far, although top federal insurance experts said any international standards would reflect U.S. regulations.
S. Roy Woodall, the FSOC member with insurance expertise, testified Sept. 29 at a hearing before the House Financial Services subcommittee on Housing and Insurance. Woodall testified alongside Federal Insurance Office Director Michael McRaith and Tom Sullivan, the Federal Reserve Board’s senior adviser on insurance.
“I personally worry that the scope of federal efforts to develop and coordinate federal policy on international insurance prudential matters has gone too far in displacing authorities that Congress has reserved to the states and state regulators,” said Woodall, a former U.S. Treasury Department analyst and Kentucky insurance commissioner.
“In my view, the negotiation of these types of international agreements by some federal agencies has thus far taken place in an atmosphere of opaqueness that I believe to be at odds with our traditional principles of openness, transparency, and oversight in insurance regulation,” Woodall said.
The International Association of Insurance Supervisors is to finalize the Higher Loss Absorbency standards in November. Industry groups have complained the pending adoption of the HLA standards is unnecessary and premature, given the IAIS has delayed the approval of the quantitative capital standards. The quantitative standards will apply to large international insurers (about 50) while the HLAs are reserved for the approximately nine companies identified as global systemically important insurers (Best’s News Service, Sept. 3, 2015).
“There is a feeling that the international regulators may be driving that cart,” Woodall said.
However, McRaith and Sullivan both pledged any global standards would follow the U.S. regulatory framework.
“While we view the development of international standards as important to helping improve financial stability,” Sullivan said, “no standards recommended or developed by the IAIS apply in the United States unless they are consistent with applicable U.S. law.”
“The U.S. insurance market is the world’s largest insurance market,” Sullivan said. “I fail to see how a standard would be accepted around the globe if you ignore the world’s largest insurance market.”
McRaith, the former Illinois insurance commissioner, agreed.
“Treasury priorities will remain the best interests of U.S. consumers, U.S. insurers, the U.S. economy,” McRaith said. “FIO continues to work collaboratively with the state insurance regulators and the federal reserve on matters before the International Association of Insurance Supervisors.”
“We want to make sure that we are very clear on the U.S. views,” McRaith said. “In our view the state system works very well.”
Subcommittee Chairman Blaine Luetkemeyer, R-Mo., said he didn’t want U.S. regulators to be bullied by their global counterparts. The Federal Reserve, Treasury and state regulators have been under enormous domestic and international pressure to develop new bank-like holding company regulations, Luetkemeyer said.
“Despite its proven track record, the domestic regulatory landscape is being forced into significant changes. We are seeing more intrusions not only by the federal government by international financial regulators,” said Luetkemeyer, a former insurance broker. “The approach on the HLA has created some alarm about the U.S. insurance space and has the potential to damage our domestic system.”
The Property Casualty Insurers Association of America urged the Fed to release the pending domestic capital standards before the global standards are published. If not, federal regulators should move quickly to delay the release of the HLA directive before it comes out next month, PCI said.
“It is particularly critical for our U.S. representatives to the international agencies that are dictating financial policy to oppose new (international) supervisory standards before the Federal Reserve has adopted appropriate state-based risk measurements for the holding companies it supervises,” according to written testimony provided by PCI.
“Otherwise, instead of leading productive discussions towards mutual recognition of the U.S. system, our regulators and companies will be prejudiced by a harmful and potentially discriminatory global standard,” PCI said.
Luetkemeyer agreed.
“It is important that the Fed develop a domestic standard first and then export it to the rest of the world,” Luetkemeyer said. “There is a need for the Federal Reserve to get this rulemaking right.”
Sullivan said the Fed has no timetable for the release of the domestic standards.
(By Frank Klimko, Washington correspondent, BestWeek: frank.klimko@ambest.com)