FIO Focus, Issue No. 59: Reconstituted Federal Advisory Committee on Insurance (FACI) Meets

by Nelson Brown & Co.
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Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

Reconstituted Federal Advisory Committee on Insurance (FACI) Meets

On August 7, 2014, the Federal Advisory Committee on Insurance (FACI), an advisory body to the Federal Insurance Office (FIO), met in Washington, DC.

The new chairperson is Daniel S. Glaser, President & Chief Executive Officer, Marsh & McLennan Companies. Last year, the committee was expanded from 15 to 21 members. The new members are:

  • Gary Bhojwani, Chairman of Allianz Life Insurance Company of North America
  • Elizabeth Brown, Professor, Georgia State University
  • Brenda Cude, Professor, University of Georgia
  • John Franchini, Superintendent, New Mexico Office of the Superintendent of Insurance
  • Nicholas Gerhart, Commissioner, Iowa Insurance Division
  • Daniel S. Glaser, President & Chief Executive Officer, Marsh & McLennan Companies
  • Mark Grier, Vice Chairman, Prudential Financial, Inc.
  • David Herzog, Executive Vice President & Chief Financial Officer, American International Group, Inc.
  • George Keiser, Representative, North Dakota House of Representatives
  • James Kelleher, Executive Vice President & Chief Legal Officer, Liberty Mutual Insurance
  • Theodore Mathas, Chairman, President & Chief Executive Officer, New York Life Insurance Company
  • Julie McPeak, Commissioner, Tennessee Department of Commerce and Insurance
  • Franklin (Tad) Montross, Chairman, President & Chief Executive Officer, General Re Corporation
  • Theodore Nickel, Commissioner, Wisconsin Office of the Commissioner of Insurance

The following persons previously served and remain members of the FACI:

  • Birny Birnbaum, Executive Director, Center for Economic Justice
  • Michael Consedine, Commissioner, Pennsylvania Department of Insurance
  • Jacqueline Cunningham, Commissioner, Virginia Bureau of Insurance
  • Loretta Fuller, Chief Executive Officer & Chief Financial Officer, Insurance Solutions Associates
  • Scott Kipper, Commissioner, Nevada Division of Insurance
  • Benjamin Lawsky, Superintendent, New York Department of Financial Services
  • Sean McGovern, Chief Risk Officer & General Counsel, Lloyd's of London

FIO Director Michael McRaith announced that the existing two international subcommittees would be combined into one, the International Developments Subcommittee. The subcommittee will be chaired by Commissioner McPeak of Tennessee. Birny Birnbaum agreed to chair the Affordability and Accessibility of Insurance Subcommittee. McRaith alluded to the possibility of a new subcommittee, but did not provide any details.

Members’ Areas of Interest

FACI members were invited to identify areas of interest for FIO’s consideration and suggested the following:

  • Increased transparency on international insurance developments including the activities of the International Association of Insurance Supervisors (IAIS) and the creation of global capital standards
  • The Common Framework for the Supervision of Internationally Active Insurance Group (ComFrame) field testing
  • Surplus lines premium tax allocation
  • Use of captives to finance risks
  • The adequacy of proposals in the Rector Report for principles-based reserving implementation
  • Accessibility and affordability of insurance for consumers, including business insurance
  • Use of risk classifications and data
  • Consumer credit insurance, creditor-placed insurance and mortgage insurance
  • Market conduct to focus on data collection and analytic capabilities
  • Development of a national disaster strategy to move from relief efforts to resiliency
  • Systematically Important Financial Institutions (SIFIs) and Internationally Active Insurance Groupsand their relation to financial stability
  • Domestic capital standards for insurers not regulated by the Federal Reserve
  • Uniformity of guaranty fund systems
  • International standards that may apply to non-SIFIs
  • Providing certainty in the market about events such as natural disasters and cyber terrorism
  • Level playing field for domestic and international insurers
  • Life insurance reserving in general
  • Consumer information, education and disclosures
  • Effects of “silos” between insurance regulators and other financial services regulators
  • Enterprise risk management and governance practices
  • Collision between old insurance laws and new technology (cyber, ride-sharing)
  • Eliminating certain products as a way to reduce systemic risk
  • Consideration of small insurers (e.g. insurers operating in only one state) when developing recommendations

McRaith thanked members for their contributions, but did not comment on the suggestions. Some members expressed interest in health and long-term care matters. McRaith noted that neither subject is within FIO’s authority and that the scope of FIO’s current charge is “robust” enough.

FIO Modernization Report

McRaith reported on the highlights and recommendations in FIO’s report “How to Modernize and Improve the System of Insurance Regulation in the United States.” He stated that the report reiterated support for state regulation and federal involvement in ways that complement state regulation.

International Developments

The committee had a brief discussion about international standards. McRaith said there would be time for further discussion about international issues at the next FACI meeting. Some committee members questioned the need for group capital standards. McRaith noted that much of the work on international standards is driven by the Financial Stability Board and noted the significant premium growth in several emerging markets, including China, South Korea and Brazil. He also stated that the standards are just that – standards – and would need to be implemented by each jurisdiction. One committee member suggested that if there are not common international capital standards, insurers in developed and highly regulated jurisdictions will be at a competitive disadvantage in the global market.

The next FACI meeting is scheduled for November 6, 2014.

EU-U.S. Dialogue Project Releases Updates to The Way Forward Document

The EU-U.S. Dialogue Project’s Steering Committee recently updated the “EU-U.S. Dialogue Project: The Way Forward” document (Way Forward). The changes were made as a result of unspecified developments in the EU and the U.S. as well as the progress made to date on the project.

The Way Forward was originally released on December 21, 2012, and outlines the objectives and initiatives of the EU-U.S. Dialogue Project. FIO Focus 26 provides a summary of the December 2012 Way Forward document. FIO Focus 23 includes a summary of the seven technical committee reports that formed the basis of the original Way Forward.

The changes to the Way Forward are described below.

1. Professional secrecy/confidentiality

  • A new initiative to assess the effectiveness of existing bilateral Memorandums of Understanding (or similar documents) on exchanges of information between U.S. states and federal agencies and EU Member States for purposes of identifying critical elements and best practices related to sharing of confidential information.
  • A new initiative to identify the merits of an additional trans-Atlantic bilateral agreement, including the optimal structure(s) of such an agreement, to facilitate the exchange of confidential information through a covered agreement or other mechanisms identified by the Steering Committee. This is to be completed by the end of 2014.

2. Group supervision

  • A new obligation for the “ U.S. side” to report on the integrated effect of the total system of insurance supervision in the country that reflects the state and federal levels. This report is to focus, where appropriate, on those states that are group-wide supervisors for insurers operating in multiple jurisdictions.
  • Evaluation of the use of a covered agreement to achieve group supervision objectives. This is to be done by the end of 2014.

3. Solvency and capital requirements

  • A new initiative to provide a forum for the periodic bilateral exchange of views of experts from state and federal agencies and from the EU with regard to efforts of the International Association of Insurance Supervisors (IAIS) to develop basic capital requirements, a high-loss absorbency requirement and an insurance capital standard.

4. Reinsurance and collateral requirements

  • The EU and Treasury/FIO, in consultation with state insurance regulators, are to take initial steps toward a covered agreement by the end of 2014. The covered agreement would be based on the NAIC Credit for Reinsurance Model Law and Regulation.

5. Supervisory reporting, data collection and analysis

  • Both sides will mutually explore consistency and compatibility in group reporting and analysis with consideration given to the substance and frequency of reporting.

6. Peer reviews

  • No substantive changes.

7. Independent third-party review and supervisory on-site examinations

  • The EU will consider the need for more consistent professional standards surrounding the credentials of actuaries and the requirements for actuarial opinions to be made public.

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