Yet, "the FSB dismissed what we do well and focused on other things I do not feel are as important," Leonardi said in a telephone interview Aug. 29.

The FSB report found that while the state-based regulatory system was effective in assuring policyholder protection and the soundness of individual insurance companies, it lacked a systemic focus and the capacity to exercise group-wide oversight.

Leonardi thinks the FSB believes the U.S. system is too decentralized and in need of a systemic focus. Leonardi says the report, in part, "shows a lack of understanding of what we do," he said.

"I don't want to pick on the federal regulators, everyone's professional and doing the best they can, but centralized regulation failed," he said. "That did not happen in insurance. Yes, it is decentralized and yes it is not streamlined, but it doesn't fail."

"Why go from a system that works and go to one that has failed? It is totally illogical," Leonardi added. "You have people from the European Union trying to analyze the U.S. That is like a Yankee fan selected to judge the Red Sox."

Additionally, Leonardi was not happy with a U.S. FSB member: the U.S. Treasury.

"I would hold up our insurance regulatory system against any system in the world," Leonardi said. "I am disappointed that the U.S. Treasury did not recognize the inherent flaws in the report and the unsubstantiated nature of the report's conclusions," Leonardi said.

The comment Treasury made on the report two days ago was: "As a member of the FSB, we welcome the evaluation of our financial sector policies by an independent international body. We agree with the findings that the establishment of the Financial Stability Oversight Council, the Office of Financial Research and the Federal Insurance Office represent important steps to enhance the stability of the financial system." 

The FSB report called for bolstering the role of FIO and imposing a more uniform regime.

PCI REACTS

"PCI agrees with the FSB analysis on the need to ensure effective and efficient coordination, information sharing, and address any overlap or gaps in the roles and responsibilities of the agencies. However, an approach that is designed for banks should not be imposed on insurers, which have very different business models and risk profiles," said David Snyder, vice president of international policy for the Property Casualty Insurers Association of America.

"As the dialogue continues regarding potential structural changes to help ensure financial stability, it is important to remember that the US state-based insurance regulatory system has successfully overseen the largest insurance market in the world for over 150 years," said Snyder. "Our market is large and diverse, well serves consumers and has withstood the financial crisis, better than some other sectors, unprecedented natural catastrophes, and years of economic slowdown."

"We must keep in mind that the FSB Peer Review Report was prepared by a global team that may not like our state-based system, not because it is ineffective, but because it is different," Snyder concluded.