Earlier, at the NAIC opening session Thursday, Sheila Bair, former chair of the FDIC during the financial crisis (June 2006-July 2011) urged the NAIC to fight the pressure to use European-capital standards “very strongly.” She was referring to internal modeling that insurers would use under the European Solvency II regime. Avoiding Solvency II's banking counterpart, BASEL II, “was the only thing that saved our bacon” during the financial crisis Bair says.

Models should never be used to drive minimal capital levels, she says. “We kept our leverage ratios and fought BASEL II and I am so glad we fought it off,” she says, pointing to the sovereign-debt problem now in Europe.

The NAIC is currently working on its own version of solvency standards under the Solvency Modernization Initiative, where many regulators have chafed under the capital-requirements approach of Solvency II.

Connecticut Insurance Commissioner Thomas Leonardi says Bair's comments were “music to the ears” of many regulators assembled there.

Leonardi has been a vocal opponent of the one-size-fits-all approach he believes Solvency II is taking. Leonardi and Washington, D.C. Commissioner William White are both now part of the Federal Insurance Office's (FIO) advisory circle known as Treasury Department's Federal Advisory Committee on Insurance.

NAIC CEO Terri Vaughan says some learned a hard lesson that when you create systems with internal models there are games to be played. “At the NAIC, we are looking at the basic leverage ratio,” she says, for strength, with minimums that are clear, before looking at more complicated systems.”

The International Association of Insurance Supervisors has begun developing a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) in July 2010.

McCarty's comments reference concerns about the direction of ComFrame. “We have made our position abundantly clear,” McCarty says in response to concerns voiced by David Snyder, vice president and associate general counsel of the American Insurance Association about a possible new layer of regulatory oversight and requirements.

After noting that the U.S. and Europe had different approaches, McCarty says, “We think the focus should be on risk concentration. We don't believe capital is the answer.”

In banking there are issues of insufficient capital. “We don't think that is the case in insurance,” he notes.

He adds, “If you spend all this time [and] resources on capital…you have created a false sense of security.”

Bair, the recent federal banking regulator, also urges the NAIC to start getting involved in credit default swaps, and to take a look at any insurance interest, as she believes these derivatives could cause another credit event. Flying out in high volume in unregulated pockets of the globe, she says they are not normally overseen by state insurance regulators. She notes CDS were at the heart of the crisis in 2008, not AIG's capital models or lack thereof.