FACI: Its Flavor Is International, Its Focus Is on Domestic Regs

"The one thing I like that the international people are doing is ORSA [Own Risk and Solvency Assessment]," Pennsylvania Deputy Insurance Commissioner Steve Johnson said last fall at the national NAIC meeting, after delivering a diatribe against international regulatory initiatives like ComFrame, a "400-page document" and other aspects of Solvency II. ORSA is a group supervision requirement of Solvency II. 

When a committee member expressed his concern that the FIO and states could end up diametrically opposed to one another on prudential supervision approaches, McRaith responded that he is "entirely confident" that will not happen and that the FIO and state insurance regulators have the same interest in a system that will be fair and protect the interests of consumers, the Nelson Levine law firm summarized.

This new subcommittee is the third formed under FACI. 

The first two subcommittees, Affordability and Accessibility and International Regulatory Balance, have already begun work on guiding principles, and were also given an international focus. 

The latter subcommittee's purview is more obvious internationally, by name–it is charged with determining whether it was important for Europe and the U.S. to have compatible regulatory systems and determining what "compatible" would mean in this context and whether the U.S .regulatory system is equipped to regulate insurers doing business internationally and whether there are gaps in the U.S. system that put U.S. insurers at a disadvantage when doing business internationally, Stead wrote.

On the Affordability and Accessibility Subcommittee, the charge is also international– determining the impact of international regulatory developments on U.S. consumers. It also examines the role of state regulators by asking whether the role of U.S. regulators has kept pace with the U.S. market, whether producers have been affected by U.S. demographic changes and whether the regulation of producers domestically by the states has kept pace with any such changes, according to the law firm's write-up.  It will also ask whether personal lines insurers have been affected by the changing demographics in the U.S.

McRaith said again, according to the Nelson Levine summary, that the coordination of the timing of the designation of insurers and groups as globally systemic important institutions by the IAIS and as systemically important financial institutions by the Financial Stability Oversight Council (FSOC) is a priority. This is seen as happening in the first quarter 2013.

Also, as expected, at the FACI meeting, McKinsey and Co. provided an analysis of the global property and casualty market and the global life insurance market. As McRaith has pointed out using similar data in the past, large U.S. carriers are deriving more of their income from overseas than they used to, as Nelson Levine summarized. McKinsey representatives stated that in the 1950s U.S. carriers derived about 5% of revenues from international markets. The analysis showed that the number increased to 39% in 2009. 

McRaith cited in his May 17th testimony before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity a recent McKinsey study that showed that insurers, including U.S.-based insurers but not limited to them, are now generating almost 33% of premium volume from outside the insurers' home countries.