BREAKING: MetLife will appeal proposed SIFI designation

Washington, Oct. 3 — MetLife will be appealing the preliminary designation of nonbank systemically important financial institution status.

The U.S’s largest life insurer delivered notice today to the Financial Stability Oversight Council (FSOC) requesting a written and oral evidentiary hearing to contest the Council’s proposed determination.
The Council must then schedule the hearing within 30 days after MetLife’s request.
If MetLife is designated by the Council as a non-bank SIFI, it will be subject to supervision by the Board of Governors of the Federal Reserve System and be subject to enhanced prudential standards under the Dodd-Frank Act, which may include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other related subjects as appropriate.
FSOC has to make a final determination on MetLife’s status as a non-bank SIFI within 60 days after the MetLife hearing.

Metropolitan Life Insurance Building, New York building NYC  c1900 courtesy LOC

Metropolitan Life Insurance Building, New York building NYC c1900 courtesy LOC

MetLife CEO Steve Kandarian said last month in a statement after the FSOC handed MetLife a preliminary designation that, “MetLife strongly disagrees with the Financial Stability Oversight Council’s preliminary designation of MetLife as a SIFI.
“MetLife is not systemically important under the Dodd-Frank Act criteria. In fact, MetLife has served as a source of financial strength and stability during times of economic distress, including the 2008 financial crisis,” Kandarian stated then in language consistent with the message of the company over the past two years. It has been fiercely opposed to the idea it may be systemically risky–that its failure could imperil the US financial system.
However, it has also proposed modified prudential capital requirements for insurers designated as SIFIs in presentations to regulators, perhaps just in case.
“Imposing bank-centric capital rules on life insurance companies will make it more difficult for Americans to buy products that help protect their financial futures. At a time when government social safety nets are under increasing pressure and corporate pensions are disappearing, the goal of public policy should be to preserve and encourage competitively priced financial protection for consumers,” Kandarian stated.
Fed oversight will include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other related subjects, MetLife stated in an 8-K disclosure to the SEC this afternoon. The news came at the end of the 30 day window for appeal notice after the Sept. 4 proposed designation vote by the FSOC.
The Fed, for its part, is still learning how to regulate Prudential at the Boston Fed and AIG at the New York Fed.
Both insurance SIFIs have already filed resolution plans, as required, and the Fed Board just this week unveiled a q<a href=”If the Company is designated by the Council as a non-bank SIFI, it will be subject to supervision by the Federal Reserve System and be subject to enhanced prudential standards under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which may include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other subjects.
The Fed unveiled this week a quantitative impact study on insurance capital data designed to help tailor capital requirement standards for the insurers in its supervisory stable.
MetLife said it would not comment beyond its 8-K. It is not known whether MetLife would appeal to the court system. Prudential Financial appealed to FSOC, but the Council’s decision was upheld in a 7-2 vote. It decided not to challenge the designation in the court system where a high bar for proof exists.
A interesting part of MetLife’s potential designation will be the rationale used by FSOC if it designates MetLife. For example, for Prudential, last year, the FSOC majority started with the premise of an impaired insurer, with a run on the bank scenario, that many in the insurance industry–and the independent insurance expert, Roy Woodall, thought was implausible, according to his dissent.
Last year, FSOC determined after Prudentials’ failed appeal of its SIFI mantle that the insurer’s material financial distress could pose a threat to financial stability focusing on two of the channels: exposure and asset liquidation.
“The Council has based its conclusion solely on what is referred to as the First Determination Standard; namely: ‘material financial distress at the nonbank financial company could pose a threat to the financial stability of the United States,’” Woodall stated in his dissent last fall.
Under Dodd Frank regulations, FSOC can, but does not require, that it begin with the company in distress and make determinations from there.
Passing that up brings the so-called Second Determination Standard, dealing with the activities of an institution, into play.
Until there are public statements, it is still unclear to the public what the FSOC rationale for MetLife as a proposed SIFI actually is or will be.

There are 10 voting members of the FSOC, one of whom, Roy Woodall, is an appointed insurance expert. Others represent various federal agencies dealing with banking, securities, mortgage financing and derivatives.
There are also nonvoting members who weigh in.National Association of Insurance Commissioners President and North Dakota Insurance Adam Hamm is now the NAIC’s representative to the FSOC, taking Missouri Insurance Director John Huff’s place. Huff dissented to the Prudential designation as a non-voting member of FSOC. His dissent is still part of the record. Hamm will be in place to vote on the MetLife designation.
MetLife, through its subsidiaries and affiliates, is one of the largest life insurance companies in the world Serving approximately 100 million customers, MetLife has operations in nearly 50 countries and holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.

Fed calls for data in quantitative impact study on ‘its’ insurers

Washington, Sept. 30 —

It’s here. The Federal Reserve Board today invited insurers to participate in a voluntary data collection for a quantitative impact study (QIS) to analyze the impact of various aspects of the regulatory capital framework.
The study will be designed to help the Fed to possibly tailor its capital requirements for its supervised institutions, which include savings and loans substantially engaged in insurance underwriting activities, and Dodd Frank’s nonbank/insurance systemically important financial institutions (SIFIs.)
Section 171 of the Dodd-Frank Act requires, in part, that the Board establish consolidated minimum risk-based and leverage requirements for depository institution holding companies and nonbank financial companies supervised by the Board that are not less than the generally applicable risk-based capital and leverage requirements that apply to insured depository institutions.
The QIS is more than a glimmer of hope for insurers who were concerned about draconian, ill-placed capital standards that did not befit their capital structure mixed with inflexibility in rule interpretation with regard to long-tail liabilities and premium collection.
The Fed says the QIS is being conducted to allow the Board to better understand how to design a capital framework for insurance holding companies that is compliant with Section 171, the so-called (Maine GOP Sen. Susan) Collins Amendment.

View from then-new Federal Reserve building, May 1937, courtesy LOC archives

View from then-new Federal Reserve building, May 1937, courtesy LOC archives

The study’s results could help tailor capital requirements for insurers even without the pending Congressional legislation, as the Fed follows for a two-track system.
Under the track where there is no legislative fix for the Collins Amendment, the Fed would “still be able to do some things because there are insurance products…that do not resemble existing bank products. And so in some cases, we can and we’re already planning to assign different risk weights to those based upon our assessment of the actual risk associated with — with those assets,” in the words of Fed Board Gov. Mark Tarullo before a Senate Banking Committee earlier this month.
By getting more information from the insurance companies, Tarullo said then, “We hope to actually find a few other areas where consistent with existing statutory requirements, we could still make some adjustments.”
He said it “all come down to core insurance activities and the different kind of liability risks that are associated with them, noting the assets are often the same but that it is on the liability side of the balance sheet where an insurer capital structure is unique and deserves a different treatment, perhaps.
Tarullo said that the Fed would “like to be able to take (the liability difference between insurers and banks) into account” during his testimony.
Information provided via the QIS should be as of year-end 2013, unless noted otherwise for purposes of reporting specific line items. Note that the Federal Reserve may follow-up with participating firms to better understand the information provided in the final submission package.
The QIS template and QIS instructions were developed exclusively for the purposes of this data collection exercise. The QIS data collection and subsequent analysis of that data are not to be construed as an official interpretation of other documents published by the Federal Reserve System or as representing any final decisions regarding implementation of a regulatory capital framework or reporting requirements for the firms in scope. Data and responses provided via the QIS will be used and maintained in a manner that  the Fed says is designed to preserve firm anonymity and confidentiality of the voluntarily-submitted data.

The reporting template is detailed with many subcategories that add up to toal capital, including amounts such as  capital requirements for underwriting risks, including international subsidiaries and total investments in the Tier 2 capital instrument of other financial institutions that the holding company holds reciprocally, where such reciprocal crossholdings result from a formal or informal arrangement to swap, exchange, or otherwise intend to hold.

Exposures and debt obligations, performance standby letters of credit and transaction-related contingent items are also to be detailed in the line by line data call.

The Fed seems open to collecting any and all information the insurer can produce, in a form that can reflect statutory or national accounting standards.

The QIS template is divided into four parts: Part I: Regulatory Capital Components and Ratios; Part II: Risk-weighted Assets; Part III: Separate Account Data; and  Part IV: State-based or Foreign Equivalent Risk-Based Capital (RBC) Requirements.

Parts I and II are based on Federal Reserve’s regulatory capital schedule for holding companies modified as appropriate for the QIS, and ask for consolidated data under Generally Accepted Accounting Principles (GAAP). T

The QIS instructions for Parts I and II also include guidance on reporting insurance-specific assets, as well as general guidance on expectations for estimating GAAP numbers for companies that produce financial statements based only upon Statutory Accounting Principles (SAP).

Firms that produce financial statements based upon SAP only are requested to include narrative responses to certain questions to provide the Federal Reserve with a better understanding of the assumptions used to estimate amounts under GAAP, as well as a breakdown of certain regulatory capital components and insurance-specific assets.

‘Team’ USA trying to fashion own capital standard for global stage

The development of group capital standards or the global insurance capital standard (ICS) has reached U.S. shores and the sector is working together–or listening together–to develop possible approaches.
To that end, U.S. regulators and stewards of domestic insurance policy met with the insurance industry Friday to discuss possible approaches to a U.S.specific group capital framework that would satisfy the International Association of Insurance Supervisors (IAIS).
The National Association of Insurance Commissioners (NAIC) hosted its ComFrame Development and Analysis Working Group in Washington with members of the insurance industry, and representatives from the U.S. Treasury Department’s Federal Insurance Office (FIO) and the Federal Reserve Board to discuss a U.S. group capital proposal that respects jurisdictional accounting requirements and perhaps also incorporates the U.S. risk based capital (RBC) approach.
Many in the U.S. favor jurisdictional-based approach rather than a standard imposed globally, leading to proposed solutions for crafting a domestic capital standard that would be okay’ed by global supervisory forums .
Any standard would be adopted by the Fed for its stable of insurers–thrifts and systemically important insurers–and the states, via the NAIC for all other insurance groups.
The Fed and Treasury are influential members of the G-20’s Financial Stability Board (FSB) and have a great role in capital standard development for financial institutions worldwide.
The meeting was led by Florida Insurance Commissioner Kevin McCarty, past NAIC president, Pennsylvania Commissioner Michael Consedine, head of the NAIC’s International Insurance Relations (G) Committee and NAIC president-elect, Tennessee Commissioner Julie Mix McPeak and New Jersey Commissioner Ken Kobylowski.
The NAIC staunchly adheres to a position that any capital objective be the protection of policyholders.

Staircase at National Fire Group, Hartford, Dec. 10, 1941, courtesy Library of Congress archives via Gottscho-Schleisner, Inc.,  photographer

Staircase at National Fire Group, Hartford Stair, Dec. 10, 1941, courtesy Library of Congress archives via Gottscho-Schleisner, Inc., photographer

Various companies suggested as possible approaches and alternatives as “work to date on these standards has revealed numerous issues and difficulties calibrating a global capital standard for such a diverse industry,” as Liberty Mutual wrote in a presentation submitted to the NAIC.
Suggested capital development approaches, based on materials submitted to the NAIC, include use of an insurance group’s own capital mode, more use of supervisory colleges, developing a group RBC formula which considers banking and non-insurance entities operating within the group (CNA), valuing cash flows, calibration with potential disaster scenarios and risks, replacing insurance reserves with best estimate liabilities to remove the major source of inconsistency across companies and regimes (Prudential Financial) while maintaining consistency between he valuation of assets and liabilities (a life insurance sector approach), and mutual recognition of local solvency regimes for international groups (Aegon/Transamerica) and use of U.S. statutory reporting measurement framework as a way to assess capital adequacy (Allstate.)
“It is more important to focus on the total asset requirement than the level of required reserves or capital on a separate basis. The focus should be on holding adequate total assets to meet obligations as they come due,” stated the American Academy of Actuaries.
New York Life put forth that “the new standards should require insurers to stress test cash flows under a set of prescribed stress scenarios. We believe that a cash flow stress testing approach offers the best way to ensure solvency and financial stability in a globally comparable manner, while preserving appropriate incentives for U.S. life insurers to continue offering sound, long-duration products that provide security to consumers.”
Or, as one person summarized. “Don’t come up with a dollar amount, come up with a probability that your cash inflows over time will exceed cash outflows…”
Non-life, property casualty companies were not so interested in matching long-term liabilities or cash flow testing because they are invested in short and medium-term municipal bonds of about seven years in duration, which need to be rolled out several times over the course of 30 years. The 30 year-notes are not as attractive anymore among low interest rate environment.
Most tossed out any mark to market accounting approach for valuations. Representatives discussed the need for a level playing field between large and small companies, the compliance costs involved for all companies in meeting these or any standards and the need for more meetings, including and in-person meeting before November.
The NAIC wants to have a recommendation for discussion and action at its Nov. 16-19 national meeting in Washington.
Some of the ideas advancing from the Sept. 19th meeting include the sentiment that domestic coordination is important if ideas are to advance internationally with a broad desire ti have all US voices say the same thing, and that p/c and life insurance need different standards, according to Dave Snyder of the Property Casualty Insurance Association Of America (PCI).
Other points include a skepticism about comparability between countries, a standard that recognizes the US model as one of the standards for compliance and an appreciation, he said, for NAIC’s transparent process.
However, Snyder said, there is “no guarantee at this point that the IAIS will accept an RBC-based system as one option for compliance…However, there are regulators outside the US that might share similar views and their systems ought to be recognized as being compliant with an ICS.”
The IAIS May 2014 ICS Conceptual Memorandum introduced jurisdictional group capital methods (the oft-cited paragraph 30) that could be accepted instead of the ICS as-is.
Although there is general NAIC and industry acceptance, if not enthusiasm here, that there will be an ICS of some sort, a byproduct–or product–of the IAIS ComFrame project which has been re-imagined by the FSB since ComFrame’s 2010 inception, not many in the U.S. are true believers.
“It is interesting to note that the effort to converge insurer accounting standards has failed after a ten year effort. Many times during the last decade it was asserted that the ‘train has left the station,’ regarding that effort. Apparently, U.S. accounting standard setters discovered “reverse” gear,” stated Marty Carus, former AIG compliance executive and a former long-time New York insurance regulator.

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,

Lawmakers to Lew: why treat insurers differently in FSOC risk review?

Two days before the Financial Stability Oversight Council (FSOC) is due to discuss, at minimum, insurance company systemic risk designations, a group of seven Congressmen led by Rep. Scott Garrett, R-N.J., wrote to Secretary Treasury Jacob Lew with concerns that the Council is not giving insurers a fair shake.

 1839 Kollner ink and ink wash landscape of Capitol Hill,  before the dome had been added to the Capitol. Courtesy, LOC.

1839 Kollner ink and ink wash over graphite landscape of Capitol Hill, before the dome had been added to the Capitol itself. Courtesy LOC.


The treatment of the insurance industry didn’t get the public analytical effort that the asset management industry did in the FSOCs “rush” to designate firms as systemically important financial institutions (SIFIs), leading to disparate treatment of insurers, the Congressmen charged in the Sept. 2 letter.

Treasury has said before it does a very through review of the companies it reviews. metLife has been under consideration as a potential SIFI for over a year-the deliberations have not been made public nor has Treasury ever acknowledged that this company was under review.

The Council has devoted far less effort to empirical analysis, stakeholder outreach, and transparency in its consideration of insurance companies for designation than it has for asset management firms,” the Congressmen alleged.

The preliminary agenda of the Sept. 4 closed FSOC meeting includes a discussion of nonbank financial company designations as well as consideration of the Council’s fiscal year 2015 budget, and discussion of the Council’s work on asset management, according to a notice from the Treasury Department.

Joining Garrett, chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, were GOP Reps. Ed Royce, R-Calif., Sean Duffy, R-Wis., Dennis Ross, R-Fla., Spencer Bachus, R-Ala., Steve Stivers, R-OH, and Mick Mulvaney, R-SC.

They asked Lew for the rationale behind the approaches to the insurance industry in its consideration of potential SIFIs, including MetLife, which may or may not go to a Council vote tomorrow for proposed SIFI designation, depending on how ready Council members are.

The Office of Financial Research (OFR), which provides research for FSOC, published a report on the asset management industry in September 13. Although the quality of the report was roundly criticized by the Congressmen and some in the industry, they used it as a point of comparison in contrast with lack of such a report for the insurance industry. The lawmakers also noted that the FSOC held a public conference on asset management back in May but questioned why a similar exercise was conducted before designating insurers as SIFIs.

Some prominent lawmakers have been busy this year sending letters to Lew and otherwise passing legislation along party line votes through committee to attempt to gain some insight control over the FSOC process, either through efforts to make it more transparent to the public or at least certain Congressional members, or to get concrete feedback on the decision-making process for nonbank SIFIs.

Garrett himself, who introduced the Financial Stability Oversight Council (FSOC) Transparency and Accountability Act (H.R. 4387), was barred from a March 2014 FSOC meting he tried to attend.

Thus far, non bank SIFIS are AIG, GE Capital and Prudential. No asset managers have yet been named. Two insurers are under consideration, MetLife, which underwent Stage 3 analysis and has had its books formally “closed by the FSOC and another company in Stage 2, according to the minutes, which is perhaps Berkshire Hathaway, as a reinsurer, but which could be another big life insurance company, as well.

If  MetLife is designated, it would be subject to enhanced prudential supervision from the Federal Reserve Board, with a host of accompanying  holding company oversight and capital standards, a yet to be worked out by the Fed. A vote by the 10-member Council would not mean a proposed SIFI designation is official until MetLife is given a chance to respond, which may mean it decides to appeal or does nothing until the time-frame to respond elapses.

FSOC’s Woodall troubled by IAIS’s proposal to limit involvement; others weigh in

The ability for international authorities to confer with policymakers with authority for financial stability in the insurance sector would be greatly hindered under an International Association of Insurance Supervisors (IAIS) proposal to basically cease “Observer” status Jan. 1. argues a member of the US Financial Stability Oversight Council (FSOC.)

FSOC Independent insurance member Roy Woodall says that the proposal detailed in the IAIS Notice of Request for Comment of Aug. 4, 2014, would render null and void  the purpose for joining as an “Observer” earlier this year, (see http://www.insurancejournal.com/news/national/2014/02/18/320673.htm) and could dampen oversight of global financial stability.

“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,” Woodall stated in a comment letter to the IAIS late last week.
The IAIS is and must remain a critically important resource to systemic risk policymakers throughout the world.  To achieve its objective of contributing to global financial stability, the IAIS should consider how best to ensure that it continues to have the strongest possible ties with systemic risk policymakers so that they will benefit from and be able to act upon the informed and knowledgeable efforts of the IAIS in the area of global financial stability,” Woodall wrote.

Comments on the proposal are due Sept. 2.

The Notice of Request for Comment announced  two agreements by the  IAIS Executive Committee: an agreement that non-members would no longer generally participate in meetings but rather be invited when necessary to provide targeted, technical input; and that IAIS engagement with outside stakeholders would increase through special sessions, more dissemination of   documents and the use of conference calls as opposed to the in-person high-level meetings the IAIS has been holding  thus far.

But the IAIS proposal could have the unintended effect of excluding policymakers with legal authorities for financial stability regarding the insurance sector and who may not themselves be supervisors–like himself, Woodall argues.

For global financial stability to be most effective it needs experts on the insurance sector, and to include those with legal authority, he points out.

Woodall suggests that the IAIS could provide for participation by systemic risk policymakers as non-voting members, a suggestion that has been thorny in the past.

The IAIS could reconsider revising its bylaws so that  the IAIS could include “national organizations” and their members, which would  include systemic risk policymakers who serve on the FSOC — and members of other similar national bodies elsewhere, Woodall suggests.

For instance, the IAIS has similarly recognized the need for engagement by critical participants in other areas and has welcomed the participation of organizations like the World Bank, the Asian Development Bank and others as non-voting members, he notes.

Woodall acted to join as an “Observer” after a proposed IAIS bylaw amendment that would have permitted systemic risk policymakers to join as non-voting members was tabled by the IAIS Executive Committee at the annual meeting in Washington, D.C. in 2012.  U.S. members of the IAIS Executive Committee at the time  were divided on the motion, with reports of concern about the wording and  the inclusion of too many non-specific insurance entities with too broad a view of a jurisdiction’s financial  stability officials.

The NAIC and the U.S.  are already heavyweight members because of their numbers and agencies represented, which include the Federal Insurance Office and the Federal Reserve Board now, too.

Woodall noted that as an “Observer” he benefits from perspective of other Observers, who also would fall off the IAIS rosters under the proposal. Woodall says the other groups help give a by better understanding the implications for industry and consumers of matters under IAIS consideration.

As such, he says he is sympathetic to the goal of ensuring that the IAIS not become wholly detached from those who may be able to provide such important perspectives.

Consumer advocates who recently also were granted Observer status, including those in the U.S. funded through the National Association of Insurance Commissioners (NAIC) are also slamming the proposal by the IAIS.

Center for Economic Justice (CEJ)’s Birny Birnbaum, a seasoned consumer advocate and also a member of FIO’s advisory committee, criticized the unequal access some parties have had  and its potential effects on all stakeholders, including his constituency, consumers, in his Sept. 2 comments.

“We applaud the IAIS proposal to stop ‘pay-to-play’ and allow any interested party to follow and participate in the activities of the IAIS. However, meaningful participation by consumers of insurance in IAIS processes requires the establishment of a formal IAIS consumer participation program reflecting a commitment to obtain consumer input….”

“We note the irony of a request for comment on public participation procedures with a note on page 1 limiting the information to Members and Observers,” Birnbaum added.

Peter Kochenburger, one of the internationally-focused NAIC consumer advocates, and an insurance law professor at University of Connecticut where he  is executive director of the Law School’s Insurance Law Center, said he agrees with the serious concerns state regulators, insurers and trade associations that the IAIS draft procedures would greatly limit stakeholder involvement.  

“Closing most meetings to outside observers reverses the presumption of openness and transparency, and doesn’t speed up any processes – allowing stakeholders to observe proceedings does not mean IAIS working groups must have public comment periods, or even interact with stakeholders at these sessions,” Kochenburger said.  “If the IAIS was considered a public deliberative body, its draft procedures would violate many state open meeting laws,” he added.  

Consumer observers are further disadvantaged, though, he said.

“We don’t come with the power and resources of insurers and other stakeholders; if we are listened to it is not because of our market share in a country, but the quality of ideas, and commitment and experience in consumer (policyholder) protection.  Our credibility and therefore our effectiveness often depends on speaking publicly at hearings and committees and being able to communicate directly with supervisors.  Much of this will be lost, along with the opportunity to meet consumer observers from other countries, who will now have equally minimal opportunities to meet in person,” Kochenburger said.

The proposed procedures will reduce the opportunity for contributions by closing meetings that once were open, says Property Casualty Insurers Association (PCI)  of America’s Dave Snyder, a long-time Observer.

The general rule in the proposal is that meetings will be closed but guests may be invited in at the discretion of the IAIS.

“This is the most fundamental of all flaws in the new procedures. The reverse should be the case, especially when the role of IAIS, as noted by the paper, has significantly increased,” stated Snyder, who says PCI strongly agrees with the remarks of the NAIC (comments here), which trumpets transparency and stakeholder participation for their own sake and as a means to increase the likelihood of acceptance and overall efficiency.

Snyder welcomed open Executive Committee sessions  but said these would not  compensate for closing other meetings and closing meetings combined with inviting “guests” into them.

Observers have decried  the proposed policy not only because it will change the dynamics  of interaction but because it comes at a critical time–the IAIS is not a sleepy organization leased a few desks by a banking oversight body in Basel, anymore.

A global insurance capital standard by 2016 for globally active insurance groups is under development, with expected  implementation by 2019, alongside the development of capital standards for global systemically important insurers (G-SIIs) and possibly for global reinsurers.

The IAIS is also developing basic capital requirements (BCRs), which are planned to be finalized this year for implementation by global systemically important insurers (G-SIIs.) BCRs will serve as the foundation for higher loss absorbency (HLA) requirements for G-SIIs, and it is anticipated that their development and testing will also inform development of the ICS, the IAIS stated last year.

IAIS observers include in the United States as of 2013:  ACE, INA Holdings Inc .,  ACORD
AFLAC, AM Best, American Council of Life Insurers (ACLI,) American Insurance Association(AIA), AIG, Assured Guaranty Municipal Corp., Barnert Global Ltd., Cigna International Corp. CNA Insurance, Deloitte LLP, DLA Piper, LLP, Duane Morris LLP, Examination Resources LLC, Genworth Financial, Liberty Mutual Group, MassMutual Financial Group, MetLife, New York Life International, Northwestern Mutual, Promontory Financial Group, LLC, Property Casualty Insurers Association of America (PCI), Prudential Financial Inc, Reinsurance Association of America USA, Starr International USA Inc., The Chubb Corp., Transatlantic Reinsurance Co., Travelers Companies, Inc., Treliant Risk Advisers, United Health Group and XL Group.

International organizations such as the International Actuarial Association, the World Federation of Insurance Intermediaries and Insurance Europe are also Observers.

Right now, all eyes are on 21st Annual Conference of the IAIS in Amsterdam, October 23- 24, 2014. The theme of IAIS 2014 will be: ’Enhancing policyholder protection and financial stability through governance and risk management’. The group will decide then how to proceed. See: http://www.iais2014.org/
However, the American Council of Life Insurers (ACLI) warns, “that the IAIS should refuse to become an ivory tower bureaucratic elite,” by instead continuing inclusive interaction with diverse stakeholder groups with… those who may not agree on approach but who have the same objectives. “This is how you will be prepared for the next crisis and not the last one,” stated the ACLI comments, written by Robert Neill, formerly of FIO.

Nonbank SIFIs agenda set for Sept. 4 FSOC. Is MetLife SIFI-hood soon?

 Treasury Secretary Jacob Lew has scheduled  a closed session of the Financial Stability Oversight Council  (FSOC) for Thursday, Sept. 4.
If  later designated, MetLife would be subject to enhanced prudential supervision from the Federal Reserve Board, with a host of accompanying  holding company oversight and capital standards, a yet to be worked out by the Fed.
A vote by the 10-member Council would not mean a proposed SIFI designation is official until MetLife is given a chance to respond, which may mean it decides to appeal or does nothing and the time-frame to respond elapses.
According to the FSOC’s notice, the preliminary agenda next week includes a discussion of nonbank financial company designations, consideration of the Council’s fiscal year 2015 budget, a discussion of the its analysis on asset management’s systemic risk, if any, and an update on the Board of Governors of the Federal Reserve System and FDIC’s recent review of resolution plans submitted by large, complex banking organizations.
Although the book is closed on MetLife now, after an August 19 notational vote by FSOC in a closed session, that doesn’t mean the FSOC is necessarily ready with its proposal to designate MetLife and has scheduled a vote. The  Council agenda’s use of the word “preliminary” means things are still fluid in workflow in that corner of the world that determines SIFI designations. It is also understood, based on earlier minutes referring to presentations from the Federal Insurance Office (FIO) that there is another insurer under review, in Stage 2 of SIFI analysis. This may be Berkshire Hathaway, as was suggested by Bloomberg news reports  in early 2014.
On Aug. 19,  the Council deemed its evidentiary record regarding a nonbank financial company

to be complete in accordance the rules and guidance of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
FSOC will not officially identify the institutions under review until a final determination is made but MetLife, like Prudential Financial land AIG before it, has made no bones about its position. It also has opposed SIFI status in public remarks for well over the year MetLife has been under consideration.
There is legislation pending in the House meant to establish a six-month moratorium on SIFI designations and to make the meetings open to more officials developed by members who fear a black box operation at the FSOC.  Meanwhile, in both chambers of Congress, there is legislation to make Section 171 of Dodd Frank, the so-called Collins Amendment, flexible so it does not establish unwanted minimum capital standards in line with bank models on insurers supervised by the Fed, which include not only SIFIs but insurers with savings and loans. The Fed’s general counsel Scott Alvarez  has issued an opinion that as Section 171 stands, there is no flexibility to carve out a way to treat insurers differently.
MetLife, along with AIG and Prudential, are already deemed to be global systemically important insurers (G-SIIs). reinsurers are expected to be named by the  International Association of Insurance Supervisors (IAIS)  and the G-20’s  Financial Stability Board (FSB) in November.