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VI. Principal Regulatory Developments Affecting Insurance Companies
State regulators oppose covered agreements, arguing that the amended Credit for Reinsurance Models form a basis for equivalence and fair treatment of non-U.S. reinsurers, and that no covered agreement with the E.U. was necessary for the United States to obtain provisional equivalence with respect to group solvency. The NAIC has also questioned the need for the drastic step of covered agreements negotiated by federal authorities and potentially preempting state laws—especially given that the federal government has not demonstrated the benefits that a covered agreement would provide to U.S. insurers or consumers.
The letters notifying the U.S. Congress concerning the intended negotiations with the E.U. with respect to the covered agreement expressly state that the Treasury and the USTR support the “U.S. integrated system of state and federal insurance regulation,” including the primary role of state insurance regulators as supervisors of the business of insurance. The letters go on to promise that state insurance regulators will have a “meaningful role” during the negotiations of the covered agreement with the E.U. The extent of this “meaningful role” remains to be determined. Additionally, it is understood that interested stakeholders will also have the opportunity to engage through a public process with those participating in the negotiations. The timing of the negotiations of the covered agreement remains uncertain.
D. FinancialSectorAssessmentProgram
As noted above, the 2015 FSAP recognized improvements since the 2010 U.S. FSAP and acknowledged broad compliance with the ICPs. The 2015 FSAP noted that many criticisms from the 2010 FSAP had been addressed and commended the contribution of risk-based capital (“RBC”) rules to regulation and the high degree of transparency evident in the U.S. insurance regulatory system. However, the following areas were noted as needing improvement: (i) objectives, powers and responsibilities of supervisors; (ii) supervisors’ independence, accountability, and resources; (iii) corporate governance; (iv) valuation (i.e., updating the valuation methodology for life insurers based on principles-based reserving); and (v) group- wide supervision. In particular, the 2015 FSAP called for the
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
U.S. to set up an “independent insurance regulatory body with nationwide responsibilities and authority.”
In November, the NAIC’s International Insurance Relations (G) Committee adopted a plan to assign some of the recommendations of the 2015 FSAP to certain NAIC sub- groups for consideration. The Committee noted that: (i) some of the recommendations are already being addressed by existing NAIC work streams (such as the NAIC’s effort to make the Corporate Governance Model Act (the “CG Model Act”) and the Corporate Governance Model Regulation (the “CG Model Regulation” and, together with the CG Model Act, the “CG Models”) an accreditation standard; this is discussed in Section VI.H.3.c below); (ii) the NAIC disagrees with some of the recommendations in their entirety (for example, the NAIC strongly disagrees with the recommendation that a federal insurance regulatory body with nationwide oversight authority be created); and (iii) some of the recommendations require further consideration by the appropriate NAIC sub-group.
E. Developments Related to Group Capital
1. SIFIs and Federal Reserve Board Capital Standards
The Dodd-Frank Act created FSOC and authorized it to designate a non-bank financial company, which could be an insurer, as a SIFI, thereby subjecting it to consolidated federal supervision by the Federal Reserve Board and enhanced regulatory standards. To date, four non-bank SIFIs have been designated, including three insurers.
No new non-bank SIFIs were designated in 2015. Rather, the primary activity with respect to insurance SIFIs has been the development of group capital standards. In late 2014, the Insurance Capital Standards Clarification Act gave the Federal Reserve Board the ability to tailor group capital standards to the business of insurance companies rather than applying bank capital standards. There is no deadline for completing the new standard, but Thomas Sullivan, a senior advisor for insurance to the Federal Reserve Board, reported to the NAIC in November that this is a priority for the Federal Reserve Board, which expects to come out with a proposed rulemaking “soon.” It is also worth noting that the 2015 FSAP also urged
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