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At a time when they face pressure to bring more uniformity to their own domestic regulatory operations, the nation’s state regulators are also increasingly active in efforts to harmonize the rules governing international insurance as well.
The international efforts of the National Association of Insurance Commissioners were on display last week in Washington, D.C. where the organization hosted a symposium on global insurance regulation, “State Insurance Regulators: Meeting Tomorrow’s Global Challenges Today,” which brought together regulatory supervisors from around the world.
U.S. state regulators maintain that attention to international affairs is in keeping with their main responsibilities in a changing world economy.
“Our primary responsibility is the protection of insurance consumers,” said Alessandro Iuppa, president of the NAIC and superintendent of insurance from Maine who has been involved in international issues for several years. “But with increasing economic integration and a growing economic interdependence of countries, it is impractical and imprudent to focus solely on a domestic agenda.”
International issues are “routinely” finding their way into many of U.S. regulators’ domestic initiatives, according to Iuppa. “It is imperative that we understand the implications,” he said.
Involvement with international bodies supervising insurance gives the U.S. regulators a chance to understand and influence what foreign regulators are doing, including new European Union reinsurance and solvency initiatives and international accounting standards.
Iuppa cited reinsurance as one example of a “truly global business” and a subject U.S. and international regulators have been discussing. Issues include whether some markets should continue to require that alien reinsurers post collateral in order to compete in their jurisdictions. Iuppa said that for some regulators, reinsurance collateral is a critical solvency issue, while for others it is a trade issue. International dialogue helps countries understand the various approaches to reinsurance. However, Iuppa added, NAIC members themselves will have to decide if reduction or elimination of U.S. reinsurance collateral requirements would threaten U.S. insurers’ recoveries from offshore reinsurers.
He stressed that setting international standards is not about usurping decision-making authority from supervisors, all of whom have their own mandates and jurisdictions, but about advancing understanding and cooperation.
Down the road, the emergence of the global economy begs the question of how willing states and other countries will be to adopt international standards for reinsurance, solvency or accounting, according to Iuppa.
While he said some international members have been fearful of transparency, Iuppa called transparency in the setting of international standards a “critical component” to the long term acceptance of any such standards.
Last week’s NAIC symposium speakers addressed financial services markets and key regulatory developments in Europe, Latin America, China and India. They included Roger Ferguson, vice chairman of the Federal Reserve Board who recently announced he is stepping down form that post, and lead regulators from India and China, as well as key representatives from the European Union’s insurance supervisory body.
In his address keynote address, entitled, “Globalization, Insurers and Regulators: Shared Challenges for Collaborative Solutions,” Ferguson, who is also chairman of the Financial Stability Forum, identified three factors he said are important for insurance regulators to focus on going forward: effective collaboration among regulators, enhanced transparency and public disclosure, and early and continuous dialogue on regulatory developments.
Ferguson told attendees that a “sound and vibrant insurance and reinsurance industry is needed to sustain global economic growth.”
He endorsed the NAIC’s efforts to improve international communication on insurance. “I am encouraged that the NAIC has met two times a year with the European Union since 1999 to address transatlantic issues in insurance,” said Ferguson.
Ferguson suggested that continued international dialogue is important because while regulation can improve the economic system, the costs must be carefully weighed. “The challenge is to find the right balance,” he said.
Iuppa said that the NAIC is seeking an international system that is both “fair and efficient for market participants and regulators” and that state regulators are “uniquely qualified” to provide input into the development of international standards. The NAIC represents the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories.
The NAIC has taken leadership positions in major international bodies of financial regulators. Principal among these are the International Association of Insurance Supervisors (IAIS), which the NAIC currently chairs, and the International Accounting Standards Board (IASB).
In the area of global economic security, the NAIC contributes to the work of the Joint Forum, where banking, securities and insurance supervisors tackle cross-sectoral regulatory issues, and the Financial Stability Forum, where finance ministers from the world’s largest economies address financial sector developments that could threaten global economic stability.
The NAIC also serves as a technical expert for federal agencies, such as the U.S. Departments of Treasury and Commerce, in the development of financial policy and the pursuit of U.S. trade objectives, including with NAFTA implementation and the WTO.
Additionally, since 1999, the U.S. has held semi-annual NAIC-EU Regulatory Dialogues to address issues affecting transatlantic insurance business, leading to negotiation of a Memorandum of Understanding (MOU) on information exchange and discussions on supervision of reinsurance. Similar exchanges have taken place with insurance regulators in Japan, China, India, Brazil, Russia, and Latin America.
The NAIC has entered into MOU’s on regulatory cooperation with China, Vietnam, Brazil, and most recently Iraq. The NAIC also sponsors an international internship program designed for non-U.S. regulators. Last fall, 10 interns from China, Korea, Vietnam and Brazil participated in the program