ComFrame Comments Tell IAIS to Define, Refine, Give Flexibility

"ComFrame should allow an IAIG the flexibility to structure corporate governance functions and processes in a manner that best suits the specific needs of the IAIG," the NAIC urged.

"The objectives of a group-wide corporate governance framework are to ensure that systems, policies and procedures are in place to effectively and efficiently provide for sound management and oversight of a group's business. An IAIG's corporate governance framework should take into account and manage specific and/or additional risks to which it may be exposed due to its international activities," the NAIC said.

MetLife said that the that ComFrame should be reworded to recognize the oversight role of boards in many jurisdictions and the need for greater flexibility in group-wide governance, internal control and risk management policies. "The draft assumes a role for the Board that is inconsistent with the authority granted to Boards in the US. This is a major issue. In many countries, including the U.S., boards play an oversight role and do not have day-to-day management responsibility for the business, which is the responsibility of senior management," MetLife pointed out.

Northwestern Mutual was vocal, as well, on the whole enterprise of ComFrame.

"We believe it is critical that the criteria and process for identifying IAIGs provide companies and regulators with greater certainty as to which companies are subject to ComFrame and which are not," the Wisconsin company stated.

"We therefore make two suggestions. First, ComFrame should establish a transitional period for companies entering and exiting IAIG status. For example, a company may need to meet the IAIG criteria for three consecutive years before becoming subject to ComFrame, and may need to remain outside the criteria for at least one year before exiting. … Second, the international activity criteria should be clarified to mean that the group has entities or branches that are authorized to write new business in the specified number of jurisdictions rather than collection of premium from policy owners moving to other countries where the group does not have a licensed branch entity.  

The requirement that an IAIG has to maintain "going and gone concern" contingency plans and procedures may be of little value in the event of an actual crisis, said Northwestern Mutual. "ComFrame should instead focus on developing the connections between involved supervisors of an IAIG pre-crisis so that they are prepared to work together in the event of an actual crisis"

The NAIC said that ComFrame should not be duplicating processes (at the holding company level) that already exist at the operating level.  The draft is unclear if the IAIG (i.e., the holding company) is the one that maintains a group-wide underwriting policy and a group-wide claims management policy, or if it's to ensure that the group's underwriting policy and claims management policy covers group- wide activities. 

"It is inappropriate for regulators to dictate governance practices to an IAIG, even more so practices that do not recognize the validity and flexibility of existing best practices adopted by organizations such as the Securities and Exchange Commission, NYSE and NASDAQ. Companies should be permitted to operate differently, which is what separates them in the marketplace," said a consortium of insurance international associations, including the American Council of Life Insurers (ACLI) and the American Insurance Association and the Reinsurance Association of America.

"The current draft appears to favor a centralized approach to group operations and management, which will not be the model followed by all IAIGs.

ComFrame needs to be flexible in its approach to IAIGs, as actual enterprise risk management practices will continue to evolve and there are dynamics within the industry that are not predictable. Recognizing that not all IAIGs face the same risks, the key is for supervisors to understand the risks and know what IAIGs are doing to address them," the domestic and foreign insurance groups said. 

ComFrame is due to be concluded by the end of June 2013, but IAIS does not talk about when it will be put into effect. 

"We and others have mentioned a phase -in period ," said Brad Smith, chief international official for the ACLI. "You can't expect 100 supervisory colleges at the end of the month, (once ComFrame is is complete in June). " Smith explained an immediate need  for a huge increase in state expenditures for 100 supervisory colleges right away, not to mention many other resource hurdles, if ComFrame's requirements were expected to take effect immediately.

"We are urging them to realize that July 1, 2013, shouldn't be a hard deadline, said Smith, who has been working on international insurance supervisory issues for decades.

MetLife said it would support a phase-in of ComFrame that could consist of a "dry run" over a period of five years, which would allow groups and supervisors to better understand the practical implications of ComFrame and make necessary adjustments so that it achieves its aim of reflecting actual practices.

The National Bank of Belgium was one of the only parties okay with much of the draft as is. "The ComFrame criteria and process for identifying IAIGs are appropriate," it stated.