As the International Association of Insurance Supervisors (IAIS) continues to move forward with its efforts to establish international capital standards, stakeholders in the United States have expressed concern over the fast paced nature of the IAIS reforms, the less than transparent nature of the process and the lack of opportunities for US stakeholders to have an impact on decisions that will affect them. Two bills-US Senate Bill 1086: International Insurance Capital Standards Accountability Act of 2015 (the “Senate Bill”), introduced on April 27, 2015 by Senator Dean Heller, and US House Bill 2141: International Insurance Standards Transparency and Policyholder Protection Act of 2015 (the “House Bill”), introduced on April 30, 2015 by Representative Sean Duffy, appear to be responses to those concerns.
The Senate Bill provides for:
- the establishment of an Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues at the Board of Governors of the Federal Reserve System (the “Fed”), comprised of a maximum of 21 members representing various sectors of the insurance industry, including life insurance, property and casualty insurance, agents and brokers, and consumer interests;
- the Secretary of the Treasury and the Chairman of the Fed to report annually to the financial services oversight committees of the Senate and House of Representatives on their efforts and coordination with the National Association of Insurance Commissioners (NAIC) regarding global insurance regulatory and supervisory issues forums, including the standard-setting issues under discussion at international standard-setting bodies, and discussions to provide increased public access and transparency to the working groups and committees of the IAIS;
- the Secretary of the Treasury, the Chairman of the Fed and the Director of the Federal Insurance Office, in consultation with the NAIC, to study and report to Congress the impact upon US markets and consumers of any key element in any international insurance proposal or international insurance capital standard before its adoption.
The Senate Bill is currently being considered by the Senate Committee on Banking, Housing, and Urban Affairs, with the latest hearing held on April 28, 2015. Both the NAIC and the National Conference of Insurance Legislators (NCOIL) have made statements in support of the Senate Bill. The NAIC noted the Senate Bill’s efforts to increase transparency in international insurance standard-setting discussions. NCOIL recognized the Senate Bill’s emphasis on ensuring that the system of insurance regulation is transparent and accountable and that it implements policies that are beneficial to both consumers and the market in general.
The House Bill expressly recognizes the successes of the state-based system of regulation in the United States and sets the following objectives for negotiations of international regulatory frameworks:
- establishments of standards, rules and requirements focused solely on policyholder protection;
- establishment of a principles-based approach to insurance supervision with capital adequacy determined using risk-based capital requirements combined with qualitative risk assessment and management on a legal entity basis;
- enhancing regulatory assessment of capital adequacy in the most efficient and least disruptive manner by using tools already in place; and
- obtaining recognition of United States prudential measures as equivalent to foreign measures.
In addition, the House Bill would prohibit United States representatives from agreeing to impose international standards designed for banks on insurers or the imposition of standards for systemically important bank or non-bank financial institutions on any insurer that has not been designated a systemically important financial institution under United States law or a global systemically important insurer by the Federal Stability Oversight Council. Except with respect to insurance entities or groups designated under section 114 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323), the House Bill would prohibit US representatives to international bodies from supporting any capital standard or rule other than one solely designed to help ensure that sufficient funds are available to pay claims to an insurer’s policyholders in the event of liquidation.
The House Bill would require the President to:
- consult and coordinate with the NAIC during negotiations of any international framework;
- notify the relevant congressional committees with respect to the goals and objectives of any negotiation with respect to international standards and publish an intent to negotiate in the Federal Register at least 90 days prior to such negotiations;
- consult with congressional committees and the Federal Advisory Committee on Insurance (FACI) during negotiations; and
- at least 60 days prior to accepting any international regulatory framework, notify Congress, FACI, and the Comptroller General of such intent, as well as publish it in the Federal Register.
The House Bill also includes provisions for the notification and review of any negotiations in progress at the time it is enacted.The House Bill has been referred to the House Financial Services Committee, but no hearings have been held. The Property Casualty Insurers Association of America (PCI) has issued a statement in support of the House Bill, praising its support of the state-based regulatory system.