Yesterday, the Federal Insurance Office (FIO) issued its first report. What is contained in the report and how is the report significant?
Under the Dodd-Frank Act, the FIO is required to release a report each year to Congress on the state of the insurance industry. The report may also include any information the FIO deems relevant or that is requested by Congress. The FIO’s first annual report, released yesterday, is an impressive document. The report provides an overview of the financial performance of the insurance industry; a review of risk management and portfolio investment activities; information about the different sectors of the insurance industry and a discussion of significant legal and regulatory developments. It contains a great deal of aggregate and high-level information. The report also contains a list of current and emerging trends affecting the insurance industry. It will likely be an invaluable resource for Congress.
There has been a lot of criticism of the FIO for its delay in releasing the Modernization Report. Do you expect the release of this report will mute some of that criticism?
Today, Director Michael McRaith is testifying before a subcommittee of the House Financial Services Committee. While the hearing is about international regulatory standards and the competitiveness of U.S. insurers, McRaith will likely face some tough questions about the annual report and the Modernization Report’s status. Under Dodd-Frank, the first annual report was to be released by September 30, 2011. In its oversight plan released in February, the Financial Services Committee called on McRaith to release the Modernization Report “without further delay.” The annual report creates an important foundation which will undoubtedly shape future discussions regarding the role of the federal government, particularly the FIO, in insurance regulation. Still, there are going to be a lot of questions about the status of the Modernization Report.
You mentioned that McRaith is testifying before a Subcommittee of the Financial Services Committee today. What do you expect to hear? How do you think the release of this report will influence the hearing?
I am not sure if the annual report will influence today’s hearing since it was only released yesterday. It will take time for the report to be digested. There will be questions about the report, but the main focus of the hearing is going to be on the FIO’s international activities.
Under Dodd-Frank, the FIO is to coordinate federal efforts and policy on prudential aspects of international insurance matters. McRaith has described the FIO’s role as being a point of contact on international insurance issues. Over the past year, the FIO has been very actively engaged with both its EU counterparts and the International Association of Insurance Supervisors (IAIS). There are some questions regarding what the FIO’s role should be in these dialogues and organizations. For example, a stated goal of the EU-U.S. Dialogue Project is promoting regulatory harmonization. Some have argued that FIO should focus on promoting the U.S. system and interests of U.S. insurers not “harmonization.”
Additionally, earlier this year Rep. Randy Neugebauer (R-TX) the Chair of Subcommittee holding today’s hearing, expressed concern that the IAIS proposals for ComFrame and standards for global systemically important insurers (G-SII) would result in additional costs for U.S. insurers which would be passed on to U.S. policyholders.