Connecticut Insurance Commissioner Thomas Leonardi has voiced several concerns about the long overdue (2 years to be exact) Federal Insurance Office (FIO) report, “How to Modernize and Improve the System of Insurance Regulation in the United States” (the “FIO report”). Many of his concerns have also been expressed by others in various contexts, but his latest commentary is one of the few instances where a regulator has voiced the concerns all together and expressed them so clearly.
Among the concerns he expressed are:
- While the FIO is advocating for Federal regulation of portions of the insurance industry, we should remember that the banking and security industries, that were already under some form of federal regulation, would have failed but for the bailout by the US government. However, the insurance industry that is regulated by state regulators fared pretty well during the financial crisis.
- Since the FIO is not a regulatory body it should not have a presence at supervisory college meetings.
- The Commissioner disagrees with the FIO-report recommendation that “Treasury and the United States Trade Representative pursue a covered agreement for reinsurance collateral requirements based on the NAIC’s Credit for Reinsurance Model Law and Regulation.” The reason for the disagreement is that over 50% of the U.S. ceded reinsurance premiums is coming from companies located in jurisdictions that have already enacted the NAIC Credit for Reinsurance Model Act, so there is no reason for Treasury, or any other entity for that matter, to take any further action.
- He has serious concerns about the designations of Systemically Important Financial Institutions (SIFIs). Basically he points out that they were designated by the Financial Stability Board without consulting with the International Association of Insurance Supervisors (IAIS) or by doing appropriate comparison studies. At a minimum he believes there should have been a comparison of the most systemic insurance company to the least systemic bank to determine whether the insurance company even met the threshold.
- Concerning SIFIs, he also points out that there is no exit strategy for a SIFI. That is, how does a company, once designated as a SIFI, take steps to have the designation removed.
The complete article from Risk.net discussing his comments can be found here.