NEW YORK — While the goal of the Common Framework for the Supervision of Internationally Active Insurance Groups is to reduce complexity, cost and redundancies in the regulatory process, panelists at a recent forum opined that the initiative is headed in the "wrong direction."
ComFrame, as the initiative is commonly called, is a project of the International Association of Insurance Supervisors (IAIS). It is an attempt to establish globally agreed to best practices for the regulation of carriers. But at a session on "Global Regulatory Concerns and Opportunities" held at the 23rd annual Executive Conference, hosted by Ernst & Young and Summit Business Media, panelists noted that the ComFram draft document has grown to 180 pages.
The session featured a diverse panel of experts: Thomas Leonardi, the commissioner of the Connecticut Insurance Department; Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers; and Andrea Keenan, vice president of research, ratings criteria and relations at A.M. Best.
Leonardi pointedly noted his opposition to global capital standards—and the panel thought that achieving any sort of global concord on the question is unlikely anyway, given the different views of solvency held by regulators in various countries and the fact that no jurisdiction is going to be eager to be subject to rules imposed by others.
Leonardi did express strong support for the efficacy of supervisory colleges which offer the "best potential" for bringing together multiple bodies of regulators under one efficiency-abetting umbrella. Connecticut participates in nine and is the lead on five.
On the SIFI front, Keenan said a designation as being a Systemically Important Financial Institution wouldn't automatically make a difference to a carrier's rating, one way or the other. But she added that if such a designation resulted in a carrier having a more sophisticated understanding of its own risks, then the impact on a rating could actually be positive.
The panel was unified in its concern with the criteria being used to identify insurers that should be SiFi designated (AIG and Prudential are widely seen as the most likely candidates), calling the methodology "flawed" for taking a bank-centric approach. "I do not believe the basic business of insurance is systemically risky," said Kading.
Panelists also thought it was misguided for global regulators to be focused on the systemic risk of a single insurer having a large share of a specific line. In their view, for example, if the dominant supplier of Marine and Aviation were to go bankrupt, competitors would be quick to substitute their capacity, avoiding a freezing up of coverage.
More positively, the panelists noted that jurisdictions in Africa and Latin America are showing an increased awareness of and are starting to adhere to regulatory standards. This "global wave" of regulation is, overall, a beneficial development, they said, that decreases global risk.
Regarding the Federal Insurance Office, panelists said that while FIO's authority to enter into cross-border regulatory agreements is clear, what its role will be in domestic oversight remains hazy. While Leonardi joked that some in the industry may prefer dealing "with one [regulatory] gorilla instead of 50 monkeys," he was—unsurprisingly as a state regulator—not in favor of a stronger federal role in a state-based regulatory process that, he noted, has been functioning well for 150 years. "The idea that we need their help is ludicrous," Leonardi said.
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