Washington, DC Atlanta Brussels Dubai Hong Kong London Milan New York Paris San Francisco Singapore Sydney Tokyo Toronto
The Future of Insurance Regulation: A Global Perspective
ACLI Executive Roundtable
January 9, 2013
William J. Toppeta Senior Adviser
Promontory Financial Group [email protected]
Major Trends
Insurance regulation is increasingly:
•
Global•
Cross-sectoral•
Risk-Sensitive•
Collaborative/IntrusiveInsurance Regulatory Convergence Will Increase
Forces at Work:
Insurance Regulation Financial Crisis G20/ FSB Crisis Response Group Supervision (ComFrame) Bank Regulation ICPs Financial Stability Assessment Process (FSAP) International Agreements Solvency II/SMI (Equivalence)© 2012 Promontory Financial Group, LLC. All rights reserved.
• FSOC’s Designation Process has 3 Stages:
US – Non-Bank SIFI Designation Process
** Pursuant to Dodd-Frank Act Section 113 ** As per Dodd-Frank Act 113 (a)(2)(K)
•
Test is impact of insurer distress or failure on global financial system and wider economy•
Indicator-based approach related to Basel Committee’s G-SIB methodology, modified for the insurance sector•
Five categories of indicators•
And, a jurisdictional judgment and validation assessment of systemic importance of insurer business segments and activities•
Additional analysis and discussion between IAIS and group-wide supervisors•
FSB and national authorities, in consultation with IAIS, determine G-SII designationG-SIIs: Indicator Weightings*
Category Weight
•
Non-traditional / Non-insurance Activities 40-50%•
Interconnectedness 30-40%•
Size 5-10%•
Global Activity 5-10%•
Substitutability 5-10%G-SIIs: Proposed Measures*
•
Enhanced Supervision
SRRPs•
Effective Resolution
RRPs•
Higher Loss Absorption
10-30% Add-OnNAIC Solvency Modernization Initiative
•
2008: Prompted by Solvency II “Equivalence”•
Priorities include complying with IAIS ICPs•
“A national system of state based regulation”•
Potential weakness: Regulatory authority limited by state law•
NAIC response is “Peer pressure”•
Does “Pressure” provide sufficient assurance that the right regulatory actions will be taken?Internationally Active Insurance Groups (IAIGs)
•
A group which includes at least one insurance legal entity•
Premiums are written in not less than 3 jurisdictions•
GWP written outside the home jurisdiction˂
10% of group total GWP•
Total assets˂
$50B•
GWP˂
$10B AND AND AND OR* ComFrame standard M1E1-1 (Parameters M1E1-1-1 and M1E1-1-2) Note that under specific circumstances, insurance groups that meet the criteria set out may be excluded from ComFrame and insurance groups that do not meet the criteria may be included in ComFrame (Parameter M1E1-1-3).
General Definition*
IAIGs: Consequences
•
Application of ComFrame•
Group-wide supervision•
Supervisory colleges•
Group-wide governance framework•
Competence of governing body•
Group-wide remuneration policy and practicesBank Regulation Continues to Permeate Insurance
•
Bank regulation of insurers with banks/thrifts – U.S.•
Integrated regulators – International
U.K. PRA’s “approach to banking and insurance supervision should be common where it can be and different where it needs to be”*•
Solvency II origin in Basel capital requirements•
Bodies like FSB/FSOC dominated by bankers•
Perception bank regulation “ahead” of insurance regulation*Presentation “U.K. Regulation and Supervision of (Re) Insurance Firms” by Alastair Paterson for IAIS RSC/RTG Washington, D.C. November 27/28, 2012 p.6.
Integrated Financial Supervisors Around the World
• BaFin supervises while Bundesbank monitors
United Kingdom Financial Services Authority
United Kingdom
Financial Services Authority
[SINCE 1997]
Banks, Building Societies, Credit Unions, Insurance Companies and Intermediaries, Friendly Societies, Stockbrokers, Fund Managers, Mortgage Brokers
Australia Australian Prudential Regulation Authority
[SINCE 1998]
Banks, Credit Unions, Building Societies, Insurance and Reinsurance Companies, Life
Insurance, Friendly Societies, and Most Members of the Superannuation Industry
Japan Financial Services Agency
[SINCE 2000] Banks, Credit Unions, Insurance Companies, Securities Firms
Germany BaFin*
[SINCE 2002] Banks, Insurance Companies, Securities Firms
New Zealand Reserve Bank of New Zealand
[SINCE 2010] Banks, Non-bank Deposit Takers, Insurance Sector
Canada Office of the Superintendent of Financial Institutions [SINCE 1987] Banks, Insurance Companies, Trust Companies, Loan Companies and Pension Plans
Singapore Monetary Authority of Singapore
[INSURANCE SINCE 1977] Banks, Insurance Companies, Securities Firms
Switzerland Swiss Financial Markets Authority
[SINCE 2007]
Banks, Insurance Companies, Stock Exchanges, Securities Dealers, Other Financial Intermediaries
New U.K. Integrated Financial Regulator
Source: U.K. FSA: Journey to the
FCA, October 2012
5 The PRA will have the power to deploy a veto where it considers the action we are taking may threaten financial stability, or cause the failure of a PRA authorized person in a way that would adversely affect financial stability .
PRA Approach to Insurance Supervision
•
Judgement – Based•
Forward Looking•
International Perspective•
Objectives Driven•
Risk Adjusted•
Collaborative 14Insurance Core Principles (ICPs)*
26
ICPs
Suitability of Persons ICP 5 Corporate Governance ICP 7 Risk Management & Internal Controls ICP 8 ERM for Solvency Purposes ICP 16 Capital Adequacy ICP 17 Intermediaries ICP 18 Conduct of Business ICP 19 Group-Wide Supervision ICP 23Standards & Guidance for Supervisors
Financial Sector Assessment Program (FSAP)
•
Created in late 1990’s aftermath of the Asian financial crisis•
Reinvigorated after GFC in 2008•
Conducted by the IMF for developed economies•
A portion of FSAP is assessment of compliance with ICPs (which are international standards)2010 FSAP Key U.S. Insurance Findings
•
Difficulty of assessment: “Over 50 separate authorities”•
Insurance Regulation is generally thorough and effective, although there are areas where development is needed:
Supervisory Independence
Policy Framework in relation to insurance/financial stability and international issues
Fit and proper
Limited requirements on governance, internal controls and risk management
Not generally focused on group-wide supervision
Lack of uniformity and proactive work respecting market conductFSAP Going Forward
•
Peer review “Desk Audit” on progress since last FSAP due in 2013•
Thematic reviews on single subjects for all G-20 countries simultaneously will be done periodically•
Next U.S. full sector assessment due in 2015 (Mandatory for U.S. and 24 other countries per IMF)International Agreements
•
G-20, FSB, IMF, et al.•
ICPs•
ComFrame•
MMoUs•
Trade AgreementsWither U.S. Insurance Regulation?
United Kingdom Financial Services Authority
