NEW YORK, April 12, 2013 – Lawrence H. Mirel is a partner in the Insurance Regulation Practice at insurance law firm Nelson Levine de Luca & Hamilton (Nelson Levine). A former Commissioner of Insurance, Securities and Banking for the District of Columbia, Larry advises insurers on the impact that the evolving regulatory landscape has on their business practices as well as the international convergence of international standards for insurers. Below he addresses questions related to growing concerns over international insurance issues.
There seemed to be an unusual amount of interest in international issues at the National Association of Insurance Commission’s Spring Meeting. Why the increased attention?
The International Insurance Relations (G) Committee of the NAIC used to attract just a handful of people at their meetings -- now, they are standing room only. It has become increasingly clear to U.S. insurers and regulators alike, that they must pay attention to how insurance is regulated outside of the United States. Not only will international insurers based in the U.S. feel the affect, but smaller regional and even single state insurers will be impacted by regulatory decisions being made in Brussels and Basel.
How could the actions of regulators outside the U.S. affect American insurers? Foreign regulators do not have regulatory authority in the U.S., do they?
No, foreign regulators do not have authority over insurers that operate solely in the U.S. but, in today’s interconnected financial world, insurance transactions often have international implications. For example, a major issue debated at the recent NAIC meeting was the supervision of large insurance groups. Many U.S. insurers are part of multinational insurance groups. Those groups may have their headquarters outside the U.S. -- in Europe, say, or in Bermuda. A U.S. insurer may be part of a large insurance group domiciled in the U.S. that has affiliates in Europe or elsewhere abroad. The Europeans have demonstrated a desire to ensure solvency for all the members of the group by setting standards and regulating at the group level. But if a member of a large international insurance group is based in a U.S. state, the state regulator will want to regulate that subsidiary and will not want to defer to the European regulator of the holding company. In essence, the Europeans are pursuing a top-down regulatory approach, while in the U.S. the regulatory system works from the bottom up.
Are the U.S. and non-U.S. regulators talking to each other about these issues?
Insurance regulators from around the world, including from the U.S., belong to the International Association of Insurance Supervisors (IAIS), which is a kind of global version of the NAIC. The IAIS is developing a framework for common regulatory standards (ComFrame) that would be applicable to large insurers that operate across national borders. The Secretary General of the IAIS, Yoshihiro Kawai, spoke at numerous sessions during the NAIC meeting. He was challenged by both insurers and U.S. regulators who expressed concern that the IAIS, which is based in Basel, Switzerland, would be trying to impose new regulatory standards on top of those insurers are already subject to by the various U.S. state regulators. They told Dr. Kawai that the U.S. state-based system, which has its flaws, works pretty well and doesn’t need to be fixed. Dr. Kawai responded that the IAIS, like the NAIC, is not a regulator and that any recommendations made by the IAIS would have to be adopted into law by its member countries.
Do the new federal entities created by the Dodd-Frank Act (Dodd-Frank) play any role in these discussions?
The Director of the Federal Insurance Office (FIO), Michael McRaith, is a member of the IAIS, as are many of the U.S. state regulators. Much of what they do with their international colleagues is constructive and cordial. But there are differences, and it is uncertain at this point whether those differences can be bridged.
A good example is the IAIS’s proposal to create a list of international insurance companies whose demise could have a significant impact on the world’s economy. Such companies would be considered global systemically important financial institutions (G-SIFIs). Meanwhile the U.S. Financial Services Oversight Council (FSOC), created by Dodd-Frank, has been tasked with determining which U.S. financial institutions are systemically important (SIFIs).
There are many uncertainties here, and these concerns were expressed again and again at the recent NAIC meeting. Will the criteria being developed by the IAIS be the same as or similar to those promulgated by FSOC? Could an insurer — say a U.S. company that operates globally, or a non-U.S. company with a large footprint in the U.S. — be designated as a G-SIFI but not as a SIFI, or vice versa? And what would be the consequences that flow from either designation? In fact, visiting state legislators who attended the NAIC/State Government Liaison session wondered aloud how such designations, either by FSOC or the IAIS, could interfere with their authority to enact state laws regulating insurers operating in their jurisdictions.