NAIC decries the member vote to end IAIS ‘observer’ status

Oct. 27, 2014, Washington — The National Association of Insurance Commissioners (NAIC) expressed strong opposition to the International Association of Insurance Supervisors (IAIS) vote to end observer membership status for non-members. The vote, which took place in closed session at the annual general meeting on Oct. 25 in Amsterdam, amended IAIS bylaws to end this observer status, which included participation in some IAIS meetings.
The IAIS is creating new stakeholder consultation procedures which have not at all been embraced by the once and former observers.
Ahthough the vote occurred in a closed session, the NAIC delegation voted against the measure, while the Federal Insurance Office (FIO) voted for it and the Federal Reserve Board representative allegedly left the room.
After attempts to work together, the schism on international supervisory issues among U.S. representatives is still defined by issues such as this.
“I am extremely disappointed in the outcome of Saturday’s vote to end observer status at the IAIS,” said Adam Hamm, NAIC President and North Dakota insurance commissioner and IAIS member. “Observers run the range of consumer advocates, insurance experts, and industry representatives – all of whom have critical input to share on the real-world consequences of decisions made by regulators. Shutting them out of the official process in favor of ‘invite only’ participation deprives IAIS members and stakeholders alike and could diminish the credibility of decisions made at the IAIS,” said Hamm, who also sits on the US Financial Stability Oversight Council (FSOC.)
ALthough the FSOC role does not assure one of membership, the fact that the NAIC members are state regulators does.
Observers, from insurance groups and lobbyists to consumer advocates to the insurance expert on the FSOC have previously spoken out against the change, criticizing the long-anticipated move for lack of access and lack of time to effect any important and long supervisory process of crafting rules — rules that would be eventually applied to insurance companies, and effect regulations, markets and consumers.
“Relegating systemic risk policymakers to only those opportunities afforded to the general public would reduce the likelihood of effective attainment of the IAIS goal of providing a meaningful contribution towards global financial stability,” FSOC Independent Insurance Expert Woodall stated in a comment letter to the IAIS in early September.
Said consumer advocate Peter Kochenburger, executive director of the Law School’s Insurance Law Center,”I would say that the IAIS annual conference in Amsterdam further confirmed the value of stakeholder participation: (1) without any consumer (policyholder) participation the dialogue is either regulators talking only to themselves, or to the industry, with the crucial second party to any insurance transaction, the policyholder, not having a voice (2) as the industry points out, they will be responsible for ultimately following and implementing changes in national (or state) insurance laws and have a knowledge base and stake in participating in its making.”
The new consultation procedures being developed will likely outline how certain stakeholders may participate in portions of some meetings by invitation only as well as the creation of open hearings with stakeholders separate from IAIS meetings.
The Center for Economic Justice (CEJ), run by IAIS observer consumer advocate Birny Birnbaum, said also in a comment letter Sept. 2, the IAIS new, proposed policy for consultation of stakeholders is not a good solution because it “will not ensure all relevant stakeholders are properly consulted because there is no formal consumer participation program or assistance, because the implementation is left to the discretion of the Chair and because there is no formal training for members or committee leadership in implementing public participation policies and procedures.”
Besides being “clearly not transparent,” the proposed ‘standardized framework’ is too short on the required interactions and too long on the options to ensure consistent stakeholder interaction across committees and projects,” Birnbaum wrote.
The IAIS is in part funded by Observer fees and some anticipate that the G-20’s Financial Stability Board (FSB), which is directing many of the IAIS work on international capital standards, may pay the funds now.
“Over the years, the IAIS has benefitted from the input and ideas provided by our observers which not only result in quality end products, but also provide our stakeholders with a better understanding of our work and our development processes,” said Kevin McCarty, Florida insurance commissioner and past NAIC president, who has served in IAIS roles for some years and who serves on the IAIS Executive Committee.
“…we are concerned about changes which will result in less transparency and openness by closing all meetings to stakeholders going forward,” he continued, contrasting the NAIC’s policy of transparency with the IAIS’ plan.
U.S. state regulators are not alone in their concern with the new process. Congress has introduced a bipartisan resolution calling for openness and transparency by the IAIS, the NAIC pointed out in a release.
Dave Snyder of the Property Casualty Insurance Association (PCI), who recently returned from Amsterdam, remarked that”the NAIC vote upholds the views of our federal and state lawmakers and our traditions of openness to all interested parties. On the other hand, the IAIS action is a serious mistake as it will make it more difficult to meaningfully consider the views of all stakeholders. It will also potentially result in flawed standards and guidance that will run into preventable opposition and thereby fail to be implemented.”

NAIC changing of the guard at FSOC: Hamm in, Huff out

Sept. 18, 2014 — Adam Hamm, president of the National Association of Insurance Commissioners (NAIC) and North Dakota insurance commissioner since 2007, has been appointed to a two-year term as the state insurance commissioner representative on the Financial Stability Oversight Council (FSOC).
As a state insurance commissioner, Hamm is one of five non-voting members on the FSOC, which is composed of 10 voting members led by the Treasury secretary.
Hamm, a Republican, replaces Missouri Insurance Director John Huff, a Democrat, on the FSOC at a critical time for insurance stability oversight. Huff had served his two terms.

NAIC President Adam Hamm, courtesy NAIC website

NAIC President and ND Commissioner Adam Hamm, courtesy NAIC


FSOC is awaiting a response from MetLife on whether it will accept or appeal its proposed designation as a systemically important financial institution (SIFI.) FSOC proposed the designation Sept. 4 without disclosing the name of the company.
FSOC is also reviewing what appears to be another insurer or reinsurer, now in the Stage 2 process of SIFIhood. Stage 3 is the final analysis before the books are closed on a company.)
There is also partisan legislation pending in Congress seeking to forestall more proposed designations for a period of time, and to force the FSOC to be more forthcoming with information as well as to allow in to its closed meetings certain members of Congress.
Huff marked his tenure at FSOC publicly with his dissent in the FSOC’s designation of Prudential Financial as a SIFI and an open statement at an NAIC meeting that members of FSOC did not understand insurance.
Huff and the NAIC have been critical of FSOC In the past but it is unknown how Hamm will play the cards given to him as a non-voting member of the Council.
The NAIC in 2011 wrote to then-Treasury Secretary Tim Geithner that Huff was being stymied by the FSOC and Treasury in his attempts to tap the NAIC and the state insurance departments for additional staff support and that Huff had been prohibited from discussing or seeking guidance from relevant state regulators even on a confidential basis. The NAIC also complained that FSOC was limiting Huff’s role on the FSOC. See: http://www.naic.org/documents/testimony_letter_110209_fsoc_geithner.pdf

Huff argued a year ago this month that the basis for the Prudential decision lacked evidence, analysis and was speculative, and based on unlikely events. He said what the FSOC did do was merely show that Prudential was a large and complex institution, but that was all it showed. See: http://www.naic.org/documents/index_fsoc_130920_huff_dissent_prudential.pdf
Huff also criticized some of the statements and arguments in the majority or “basis” opinion as suggesting “a lack of appreciation of the operation of the state-based regulatory framework, particularly its resolution processes”
For instance, he demonstrated alarm that the FSOC majority reasoned that the authority of an insurance regulator to ring-fence the insurance legal entity could complicate resolution and could pose a threat to financial stability.
Huff argued that Ring-fencing is a powerful regulatory tool utilized by insurance regulators to protect policyholders and prevents the transfer of assets without regulatory approval.
It has been a great honor to serve on behalf of my fellow state insurance regulators on FSOC,” said Huff in a statement today. 
Hamm stated that he will assume his new role “with great respect for the work of Director Huff and I look forward to working with the other financial regulators as we take the next steps to promote a stable insurance marketplace and protect the broader financial sector.”

The FSOC was created by the Dodd-Frank Act in 2010 to monitor the safety and stability of the nation’s financial system, identify risks to the system, and coordinate a response to any threats.
Companies designated as SIFIs are subject to oversight on a consolidated basis by the Federal Reserve Board. For example, Prudential Financial is being regulated as an entity by the Boston Fed, although accompanying capital rules have yet to be developed and imposed. Home state regulator New Jersey still oversees the various insurance components and market conduct elements of Prudential, but must confer with the Fed.
Huff was appointed to FSOC in August 2010 by NAIC. His term began Sept, 15, 2010 and he was reappointed in 2012 for a second term which expired on Sept. 15, 2014.

Thank you,