FSOC’s Insurance Expert Woodall Approved As International Regulatory Observer

By Liz Festa | February 18, 2014

Roy Woodall, the insurance sector voting member of the Financial Stability Oversight Council, will finally be getting involved in the International Association of Insurance Supervisors (IAIS) but as an observer, not a member, for now.

Members, generally supervisors in their own countries, help shape policy while observers, which include companies and consultants, weigh in a great deal, depending on the access they are granted at meetings. Observers also can comment on drafts and work in progress over time and have access to materials the public does not. IAIS must approve observers.

IAIS policies under consideration will shape the future regulatory oversight of the insurance industry worldwide with standards for capital for globally active and systemically important insurers, resolution of companies, structures of capital and organization, and rules of the road for governance.

Woodall has been trying for more than a year and a half to become part of the IAIS, hoping for a membership bylaw change to allow a country’s stability board members to apply to be members of IAIS.

Such a proposal was tabled at the IAIS annual meeting in Washington, D.C. in the fall of 2012 by a key IAIS committee. According to sources at the time, there was concern about too many voices from the U.S. representing insurance at the table, and whether it would open the door to other jurisdictions sending in a battalion of regulators from other countries.

Treasury’s Federal Insurance Office (FIO) and the National Association of Insurance Commissioners (NAIC) are now the official U.S. members of the IAIS, with the NAIC paying hefty annual fees–almost $382,000 — for its representation, more than any other country or jurisdiction. The annual observer fee of the Basel-based IAIS converts to about $23,000 annually from Swiss francs. FIO, as the second U.S. member, pays about $17,000, according to Swiss Franc (CHF) monetary conversions calculated today. The Fed will likely pay a lower, add-on rate, as well, as NAIC is the original U.S. jurisdictional member.

Last fall, the U.S. Federal Reserve was approved for membership to the IAIS.

Stymied by the IAIS in his bid to become a member, Woodall is now “joining the chorus” as an observer, according to his office.

“It is appropriate that we defer to national authorities with actual regulatory and supervisory responsibilities – which in the United States are the state insurance commissioners generally, and the Federal Reserve on a consolidated basis for a handful of very large insurers designated by the FSOC as being systemically important,” Woodall stated.

His office did not mention FIO, which some in the insurance industry and the NAIC eye warily as a threat to state regulation of the business.

Indeed, today, past-NAIC-CEO Terri Vaughan, who championed Woodall’s potential role at the IAIS, said Woodall should have been allowed as a member. “It is disappointing that the IAIS has not acted on the recommendation to allow financial stability experts such as Roy Woodall to be nonvoting members.  Having participated in many IAIS financial stability discussions, I know the IAIS would benefit from the knowledge and experience of both Roy and his very talented staff,” she said in an email.

Vaughan, who had been long-involved with the IAIS before the financial crisis and who departed the NAIC in late November 2012, said that she remained puzzled about what had happened to the recommendation to amend the bylaws to include the FSOC members. This bylaw change was “widely supported in October 2012, subject to some minor wordsmithing with the only opposition at the time coming from FIO…It was supposed to be brought up again for an Executive Committee vote over a year ago, but there is no record of that occurring.  I wonder what happened to it,” Vaughan added.

The IAIS and FIO did not immediately offer a response to this IAIS matter, which had been formerly confidential at IAIS, and which had caused tensions between the NAIC, certain FSOC members and Treasury over the past year and a half.

Both FIO and the NAIC staff key IAIS committees and lead policy discussions. FIO and its director Michael McRaith, who chairs the influential IAIS Technical Committee and is also a member of the Executive Committee, has been instrumental in the IAIS ComFrame project for the supervision of internationally active insurance groups. Begun in 2010, it is now ready for field testing and will include a quantitative insurance capital component. ComFrame is built and expands upon the high level requirements and guidance currently set out in the IAIS Insurance Core Principles (ICPs), which generally apply on both a legal entity and group-wide level, but IAIGs, need tailored and more coordinated supervision across jurisdictions due to their complexity and international activity, as IAIS states.

The NAIC has two state regulators on the Executive Committee, Tom Leonardi of Connecticut and Kevin McCarty of Florida.

Woodall has expressed frustration at being shut out of discussions especially at a critical time in policy discussions about insurer solvency oversight and the identification of systemically important insurers globally, and their coordination with home countries, while he is responsible for evaluating insurance company solvency domestically as an FSOC member.

Woodall testified that he was “often told that some IAIS matters are confidential and cannot be shared with me,” limiting his ability to provide meaningful input to the Council, during a hearing last June on international insurance issues before the U.S. House Committee on Financial Services Subcommittee on Housing and Insurance.

At the same time, staff from the World Bank and NGOs have been able to listen in on policy discussions while he, as a member of the U.S. FSOC, cannot, he complained back in June.

“This inability for me and other voting Council Members to fully monitor and discuss relevant issues, in my view, hampers the ability of the Federal Government to carefully consider how international insurance regulatory developments could enhance, or interfere with, the integrity, efficiency, competitiveness, and stability of the U.S. financial markets and the U.S. insurance sector,” Woodall testified at the time.

Woodall’s office stated today that participation will assist him in better monitoring the IAIS’s work related to global financial stability and also in consulting with international counterparts, while leaving regulation to the supervisors.

IAIS observers include insurance and reinsurance companies, consultants associations, and now consumer representatives. Its membership represents 200 jurisdictions in nearly 140 countries. There are about 130.

Woodall’s FSOC non-voting insurance colleague John Huff, director of the Missouri Department of Insurance, Financial Institutions & Professional Registration, said  he welcomes Woodall to the IAIS.  “He will be a significant addition.  Given the intersection between FSB/IAIS activities and FSOC activities, particularly in the designation of insurers as GSII’s [global systemically important insurers] and SIFI’s U.S. systemically important financial institutions, which, like the G-SII’s  include Prudential Financial and AIG, Roy’s participation in these international discussions is long overdue,”  Huff stated.

Woodall has noted that “the Dodd-Frank Act directs the FSOC to monitor international financial regulatory proposals and developments, including insurance, and the opportunity to observe the work of the IAIS will help all FSOC members to more effectively consider how international insurance regulatory developments could enhance the integrity, efficiency, competitiveness, and stability of the U.S. insurance sector, the global insurance industry and U.S. and global financial stability, and thereby safeguard millions of insured Americans,” he said.

Woodall said he is no stranger to the IAIS as he previously participated in the 1994 inaugural meeting and attended its public annual conference in 1998. He has also attended IAIS meetings over the years representing both the government and private sectors.

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