Consedine: NAIC Exploring SIFI Designations, Seeks Covered Agreement Talks With EU
February 27, 2017 by Thomas Harman
WASHINGTON – The National Association of Insurance Commissioners is still shaping its opinion on the Financial Stability Oversight Council’s ability to designate nonbanking firms as systemically important financial institutions, NAIC’s Executive Director Michael Consedine said.
The NAIC debate continues because of the interconnections between SIFI designations and the functions and roles of both FSOC and the Federal Insurance Office, he told Best’s News Service.
“If we’re going to pursue a recommendation or a position that we don’t need SIFI designations for insurance companies anymore, then we need to also be prepared to present compelling cases as to why state insurance regulation will effectively be able to do the same job in identifying and addressing systemic risks within the system, which very likely will continue to present themselves in ways we haven’t even thought about yet,” Consedine said. “That’s a larger discussion the membership is currently having.”
NAIC President Ted Nickel recently said he would seek repeal of FSOC’s designation process, but Consedine said he made those comments in his capacity as Wisconsin insurance commissioner rather than as NAIC president (Best’s News Service, Jan. 18, 2017).
Consedine said the NAIC would continue to examine improvements to its system, just as the NAIC did in making changes to improve its holding company model and in the development of the Own Risk and Solvency Assessment during the past five years. He said that while the NAIC is open to discussions to improve and modernize the U.S. regulatory system, any such discussion will be informed by what may or may not happen regarding a possible repeal of the Dodd-Frank Financial Reform Act, which created the FIO and the FSOC.
The Financial Choice Act, introduced last year, which would stop the FSOC from designating insurers as SIFIs and remove the SIFI label from those currently designated is expected to be under discussion in March, Consedine said.
New Treasury Secretary Steven Mnuchin, in written answers to questions from the Senate Finance Committee, has defended the role of the FSOC as a safeguard for the nation’s economy. But he also said the FSOC had overextended its regulatory authority and he would not continue what he said was FSOC’s existing practice as “an opaque regulator” (Best’s News Service, Jan. 27, 2017).
Consedine said the NAIC should engage in discussions about the meaning of the new covered agreement reached by the U.S. and the European Union. Nickel recently told a congressional panel the Trump administration should reopen negotiations with the EU to obtain a better deal for the United States (Best’s News Service, Feb. 16, 2017).
The NAIC should revisit the understanding of parties as to how the covered agreement – which he described as “this very technical, difficult-to-understand agreement” – will be interpreted, and doing so could provide an initial step toward resolving key questions, he said.
Consedine said if former FOI Director Michael McRaith’s interpretation of the covered agreement is similar to those of European regulators, then that would be a good starting point for future talks about the finality of the agreement, how capital and group supervision would be addressed and whether state insurance regulators control their own destiny at home, or whether it could be superseded by Europe. “But disagreement is not the model of clarity,” he said.
Consedine said the covered agreement and Dodd-Frank reform are not the issues keeping him awake nights. “It’s the things that threaten the long-standing nature and strength of state insurance regulation, issues like long-term care and what’s going on in that marketplace.”
Also, he said the NAIC should try to understand how companies are using their role in Big Data and digital technology, with an eye toward understanding and adapting some of those technologies to help NAIC members do their jobs. “The needle isn’t going to be moved by something like a covered agreement or an [international capital] standard,” he said. “It’s going to be something that deals with solvency issues or consumer protection issues. We want to make sure we’ve got our eye on the ball and that really is my job to make sure we’ve got our eye on the ball.”
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)
