A push is afoot to impose new, international capital standards upon systemically important insurance companies, demands that echo those placed upon banks by the Basel Committee on Banking Supervision.
The International Association of Insurance Supervisors—a global standard setting body with a membership that includes insurance regulators and supervisors in 140 countries—concluded a public consultation on Aug. 21, a step towards finalizing new capital standards for “global systemically important insurers (G-SIIs)” and internationally active insurance groups as part of its forthcoming Higher Loss Absorbency (HLA) requirement. The current plan would have the HLA delivered to the G20 for endorsement in November 2015, applying to G-SIIs in 2019.
Among the critics of that effort is the Financial Services Roundtable, an advocacy group for the financial services industry. In a letter delivered late last week to Federal Reserve Board of Governors member Daniel Tarullo, the Federal Insurance Office, and the National Association of Insurance Commissioners, it urged them to do what they can to either oppose or delay the initiative.
“We are concerned by the artificially rapid deadline against which the consultation has been issued, and the fact that the IAIS has failed to conduct any substantial economic analysis in connection with the HLA standard,” wrote Richard Foster, FSR’s senior counsel for regulatory and legal affairs. “By contrast, the Basel Committee on Banking Supervision conducted extensive economic analysis prior to adopting a capital surcharge for Global Systemically Important Banks. The unnecessary rapidity of the process undermines the ability of stakeholders, including domestic regulators and affected institutions and consumers, to fully and appropriately respond to the fundamental policy question of whether a capital surcharge for insurance enterprises is appropriate, and if so, what the appropriate level of that standard would be.”
Specific concerns outlined in the letter are a perceived lack of transparency and that the public consultation preceded an assessment methodology for defining non-traditional insurance and non-insurance activities, a key element of G-SII designations. This “puts stakeholders in the untenable position of commenting on a proposed framework whose contours are still largely undefined.”
FSR asks that U.S. regulators conduct “a completely independent” analysis on the impact and need for HLA standards within the U.S. insurance market. “A potential capital surcharge on specific insurance companies is a critically important policy issue, and all stakeholders share a significant interest in ensuring that any IAIS activities in this area are proposed, analyzed and debated in a fair, logical and thoughtful manner,” Foster wrote, urging the Fed’s Board of Governors, as an IAIS member, to advocate for withdrawing the consultation.
Those concerns come on the heels of a recent report by the Government Accountability Office that called upon U.S. regulators to improve how they communicate with the IAIS. “The international standards are being developed in a large multilateral forum in which many national regulators advocate for standards that will align with their national interests,” the GAO wrote. “In this multilateral setting, the U.S. members could better advance U.S. interests and concerns with a more unified voice. Given that U.S. IAIS members have different authorities and areas of focus, they may not be likely to reach similar positions without effective coordination.”
"The U.S. members of IAIS—including the Federal Insurance Office, the Federal Reserve, and the National Association of Insurance Commissioners—have improved coordination among themselves as a group, but could do more to incorporate leading practices for collaboration," the report added, pointing out that “it is unclear which U.S. regulator would implement and enforce the IAIS standards or how they would compare with current U.S. capital standards.”
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