The U.S. Supreme Court has a well-known aversion to applying too many principles of international law to U.S. legal disputes. But in the world of insurance regulation, that aversion to international norms may soon not be as critical to U.S. federal regulators. U.S. federal agencies, such as the Federal Reserve Board and the Department of Treasury, are upping their participation in international financial services regulatory bodies, as those organizations look to be more active in insurance regulation. Whether this new "federal" U.S. participation with international organizations may shift the balance of power away from the traditionally state-based regulation of insurance in the U.S. is an emerging question.
On November 14, 2013, the European Commission, European Parliament and Council of the European Union in Brussels finalized European insurance capital standards, Solvency II. The European Union Council's statement asserted that, "Solvency II is a long-expected major overhaul of the EU insurance regulatory framework and is very important for the insurance industry, supervisors and policyholders in the EU." While Solvency II is an EU regulatory framework, some U.S. stakeholders worry that the standards would create a competitive disadvantage for American companies. The framework requires foreign jurisdictions to work toward equivalence or face discriminatory regulatory standards.
The previous week the Financial Stability Board (FSB), an international association of major financial regulatory bodies, including the U.S. Federal Reserve Board, met in Moscow to discuss vulnerabilities surrounding the global financial system and ending too-big-to-fail. The FSB approved the list of global systemically important banks and "reviewed and welcomed" the International Association of Insurance Supervisors' (IAIS) plan to develop capital standards and group-wide supervisory and regulatory framework for internationally active insurance groups.
The Federal Reserve, not traditionally a major player in insurance regulation, has applied to become a member of the IAIS, which is in the process of developing the first-ever international capital standard for internationally active insurance groups. The standard would be risk-based and be developed by 2016 with full implementation beginning in 2019. U.S. Federal Insurance Office (FIO) Director Michael McRaith chairs the IAIS Technical Committee. McRaith has stated that the international capital standard will be designed "to promote effective and globally consistent supervision of the insurance industry and to contribute to global financial stability."
Between the increased insurance activity in international financial services regulatory bodies and the U.S. government's clear interest and involvement in such matters, some U.S. stakeholders have expressed concerns that these activities infringe on the U.S. state-based insurance regulatory system.
For example, the National Conference of Insurance Legislators (NCOIL) on November 24, 2013, made a formal request of federal officials that state insurance regulators be given deference in international insurance regulatory discussion.