If one word could sum up the discussions at the International Association of Insurance Supervisors (IAIS) Annual Conference in Washington, D.C. last month, it would be “Vision?”
In this instance, the question mark is important. Many of the IAIS members and observers participating in D.C. recognized that this year's conference occurred at a critical time for the international regulatory association. They also recognized that a clear vision of the direction of insurance supervision will be necessary to guide the activities and ambitions of the IAIS in the years to come.
Developing this vision is not a straightforward challenge for the IAIS, and over the course of the week the association grappled with many difficult questions. While the IAIS is clearly unified as an organization, its various members and observers nonetheless have different perspectives and approaches—or, in the words of NAIC CEO Terri Vaughan, “regulatory philosophies.”
The question of a global capital standard was one of the clearest points of disagreement. Given its application within Europe's proposed Solvency II laws, this objective is understandably supported by E.U. regulators for its contribution to a level playing field for groups operating internationally. It also is reasonable to expect that consistent and comparable capital across territories would facilitate supervision at a macro-prudential level. However, while it supports the need to assess the financial health of groups, the NAIC is strongly opposed to a global capital standard because of perceived disadvantages, which include its potential to shift authority over legal entity capital (and therefore state or national policyholder protection) from local regulators to a group supervisor. Moreover, the NAIC sees the lack of a globally accepted basis for the valuation of insurance contracts as a further complication to developing an international group capital standard.
This question is closely linked to the status of ComFrame, which also was debated extensively at the conference. Industry representatives from many jurisdictions have asked for ComFrame to be principles-based, and regulators generally have not disputed the need for the framework to be flexible. However, they were clear that high-level principles alone will be insufficient to achieve ComFrame's intended purpose. Striking the right balance between principles, rules and guidelines will continue to be a challenge as ComFrame is further developed and tested.
On the final day of the conference, there was a public hearing on the reports of the seven technical committees that have been comparing the E.U. and U.S. insurance regulatory regimes. Suggested technical improvements notwithstanding, there was widespread praise of the reports that the technical committees produced. As we will discuss further in an upcoming whitepaper, these reports represent an important crossroads on the path toward international alignment and cooperation, and the dialogue project Steering Committee will need to act decisively but carefully as it moves forward.
In his closing address to the conference, IAIS Chairman Peter Braumüller recognized the many areas of work in which the IAIS is engaged and asked attendees if it is really necessary for the IAIS to pursue all these workstreams with such urgency. Braumüller answered his rhetorical question with a clear “yes”—and most attendees likely agreed. The IAIS has the potential to profoundly influence insurance supervision over the coming years. However, many difficult questions remain about how to translate dialogue into tangible policy changes that achieve the global cooperation and alignment for which so many are aiming.
Henry Jupe contributed to this blog.
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