FIO, Congress Urged to Take Greater Roles to Boost Industry's Trade Globally

MetLife would like to see the EU recognize the U.S. system of regulation as equivalent for Solvency II purposes. 

Complicating that debate continues on whether insurance is systemically risky under Dodd Frank and the systemically important financial institutions (SIFI) discussion and insurers worry that designations by the Financial Stability Oversight Council (FSOC) created by Dodd Frank would further distort competition.

Lawmakers and insurers seemed troubled by the potential treatment of insurers by regulators under a bank-centric model under Federal Reserve supervision.

"We have to make sure we regulate the business of insurance and not as banking," Toppeta told the panel during questioning.  This was the subject of a hearing by another House Financial Services panel a day prior. See: http://www.lifehealthpro.com/2012/05/16/nonbank-sifi-dragnet-for-fed-supervision-targeted?ref=hp

"When a traditional insurance business fails, not every car owner is going to get into a car accident immediately upon dissolving,…there is not the same prospect of a run," McRaith told the panel. FIO is working with the IAIS [International Association of Insurance Supervisors) on the "criteria, methodology and timing" of SIFI designations "so no U.S. insurer is disadvantaged through global designation of [SIFIs]," McRaith told lawmakers.

However, McRaith said if we were to go back several years, the FSOC would find AIG systemically risky and that it was important to look at a company as a whole, not just the traditional insurance enterprise "and look under the hood" to see if there is any systemic risk. 

NAIC President and Florida Insurance Commissioner Kevin McCarty told the panel that when an insurer, as opposed to a bank is under stress, there is more of a chance for the insurance companies "to rebound." McCarty said to prevent systemic risk, the insurance enterprises of a company should be walled off.  

"For all these reasons, we urge the Federal Reserve and FSOC to work with the IAIS and the FSB, through the FIO and the NAIC, to coordinate the development of frameworks for the management of domestic and global SIFIs based on the existing insurance risk-based framework. This would avoid inefficiency, increased costs, the creation of an un-level playing field and resulting market distortion," Toppeta stated. 

At the global level, the IAIS is developing an insurance-specific assessment method to identify global systemically important insurers (SIIs or G-SIFIS, as they are known in the US parlance). Its draft is expected to be released soon, and an IAIS November 2011 Report has already concluded that traditional insurance activities do not generate or amplify systemic risk, MetLife pointed out.

 The IAIS continues its work on prudential measures to apply to global SIFIs with a target of end 2012.

IAIS is also nearly mid-way through the creation of the Common Framework for the Supervision of Internationally Active Insurance Groups (Com-Frame.)

"We urge that Congress follow this project and insist that it create a framework of clear roles and responsibilities for supervisors so there are no gaps and also no duplication of regulatory functions, the AIA said in a statement for the record. 

McRaith ended the hearing on a positive note, saying once the issues are addressed, he sees U.S. and European parties walking "arm in arm" in mutual understanding on Solvency II.