Ben Nelson, CEO of the National Association of Insurance Commissioners has outlined several concerns with the work of the Federal Insurance Office.
The FIO and the U.S. Treasury Department should not show deference to state regulators in certain regulatory forums, such as participate in International Association of Insurance Supervisors, says Nelson June 13 during testimony at a hearing before the Subcommittee on Housing and Insurance of the House Financial Services Committee.
Moreover, Nelson testified that "it is inappropriate for FIO or any other non-regulator to seek to participate in supervisory colleges, which are vehicles to discuss supervision of specific companies, without an invitation from the [state] regulators."
Nelson furthermore criticized the direction of international work on Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) and other projects of international insurance bodies.
Nelson says the NAIC supports the original intent of ComFrame to attain a framework of cooperation and coordination among jurisdictions, but regulators remain wary of "mission creep" and the "accumulation of overly prescriptive requirements" as the IAIS continues to develop ComFrame.
State regulators fear a "one-size-fits-all approach that could impose new burdens on U.S. companies and consumers with little, if any, benefit," he says.
He also says he is concerned about insures being designated domestic systemically important financial institutions (SIFIs) or global systemically important insurers (G-SIFIs), as he worries insurers large enough to become SIFI or G-SIFI could create a two-tier system, and also lead to over-concentration in the insurance sector—that a perception of some companies being safer than others could "reduce market discipline, create competitive distortions and encourage undesirable consolidation and concentration in the insurance sector."
Regulators in the U.S. and internationally should work to address the sources of systemic risk to reduce the potential an insurer could be considered risky in this manner, since it is not good for policyholders, he says.
"With that in mind, we continue to examine the scope of our authorities and resources to ensure that systemic risk does not emanate from activities within our purview," Nelson adds.
Meanwhile, S. Roy Woodall, Jr., the independent member of the Financial Stability Oversight Council (FSOC) with insurance expertise, says the IAIS is hoping to change its bylaws to allow him to better serve his legal role.
Woodall disclosed concerns in testimony during the hearing, "The Impact of International Regulatory Standards on the Competitiveness of the U.S. Insurers."
"I am often told that some IAIS matters are confidential and cannot be shared with me," he says. "I believe that attendance at IAIS systemic risk meetings is critical to fulfilling my responsibilities as a voting member of the FSOC, given the centrality of systemic risk to FSOC responsibilities."
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