The Future of Insurance Regulation: A Global Perspective ACLI Executive Roundtable

Transcription

1 Washington, DC Atlanta Brussels Dubai Hong Kong London Milan New York Paris San Francisco Singapore Sydney Tokyo Toronto The Future of Insurance Regulation: A Global Perspective ACLI Executive Roundtable January 9, 2013 William J. Toppeta Senior Adviser Promontory Financial Group wtoppeta@promontory.com 1

2 Major Trends Insurance regulation is increasingly: Global Cross-sectoral Risk-Sensitive Collaborative/Intrusive Convergent 2

3 Insurance Regulatory Convergence Will Increase Forces at Work: International Agreements Financial Stability Assessment Process (FSAP) Financial Crisis Insurance Regulation G20/ FSB Crisis Response Solvency II/SMI (Equivalence) ICPs Bank Regulation Group Supervision (ComFrame) 3

4 US Non-Bank SIFI Designation Process * FSOC s Designation Process has 3 Stages: * Pursuant to Dodd-Frank Act Section 113 ** As per Dodd-Frank Act 113 (a)(2)(k) 4

5 Designating G-SIIs Test is impact of insurer distress or failure on global financial system and wider economy Indicator-based approach related to Basel Committee s G-SIB methodology, modified for the insurance sector Five categories of indicators And, a jurisdictional judgment and validation assessment of systemic importance of insurer business segments and activities Additional analysis and discussion between IAIS and group-wide supervisors FSB and national authorities, in consultation with IAIS, determine G-SII designation 5

6 G-SIIs: Indicator Weightings* Category Weight Non-traditional / Non-insurance Activities 40-50% Interconnectedness 30-40% Size 5-10% Global Activity 5-10% Substitutability 5-10% *IAIS, Global Systemically Important Insurers: Proposed Assessment Methodology 31 May Public Consultation Document. 6

7 G-SIIs: Proposed Measures* Enhanced Supervision SRRPs Effective Resolution RRPs Higher Loss Absorption 10-30% Add-On *IAIS, Global Systemically Important Insurers: Proposed Policy Measures 17 October Public Consultation Document. 7

8 NAIC Solvency Modernization Initiative 2008: Prompted by Solvency II Equivalence Priorities include complying with IAIS ICPs A national system of state based regulation Potential weakness: Regulatory authority limited by state law NAIC response is Peer pressure Does Pressure provide sufficient assurance that the right regulatory actions will be taken? 8

9 Internationally Active Insurance Groups (IAIGs) General Definition* A group which includes at least one insurance legal entity AND Premiums are written in not less than 3 jurisdictions AND GWP written outside the home jurisdiction 10% of group total GWP AND Total assets $50B OR GWP $10B * ComFrame standard M1E1-1 (Parameters M1E1-1-1 and M1E1-1-2) Note that under specific circumstances, insurance groups that meet the criteria set out may be excluded from ComFrame and insurance groups that do not meet the criteria may be included in ComFrame (Parameter M1E1-1-3). 9

10 IAIGs: Consequences Application of ComFrame Group-wide supervision Supervisory colleges Group-wide governance framework Competence of governing body Group-wide remuneration policy and practices Group-wide risk management and internal controls 10

11 Bank Regulation Continues to Permeate Insurance Bank regulation of insurers with banks/thrifts U.S. Integrated regulators International U.K. PRA s approach to banking and insurance supervision should be common where it can be and different where it needs to be * Solvency II origin in Basel capital requirements Bodies like FSB/FSOC dominated by bankers Perception bank regulation ahead of insurance regulation *Presentation U.K. Regulation and Supervision of (Re) Insurance Firms by Alastair Paterson for IAIS RSC/RTG Washington, D.C. November 27/28, 2012 p.6. 11

12 Integrated Financial Supervisors Around the World COUNTRY SUPERVISOR FINANCIAL INSTITUTIONS United Kingdom Financial Services Authority [SINCE 1997] Banks, Building Societies, Credit Unions, Insurance Companies and Intermediaries, Friendly Societies, Stockbrokers, Fund Managers, Mortgage Brokers Australia United Kingdom Financial Services Authority Japan Australian Prudential Regulation Authority [SINCE 1998] Financial Services Agency [SINCE 2000] Banks, Credit Unions, Building Societies, Insurance and Reinsurance Companies, Life Insurance, Friendly Societies, and Most Members of the Superannuation Industry Banks, Credit Unions, Insurance Companies, Securities Firms Germany BaFin* [SINCE 2002] Banks, Insurance Companies, Securities Firms New Zealand Reserve Bank of New Zealand [SINCE 2010] Banks, Non-bank Deposit Takers, Insurance Sector Canada Office of the Superintendent of Financial Institutions [SINCE 1987] Banks, Insurance Companies, Trust Companies, Loan Companies and Pension Plans Singapore Monetary Authority of Singapore [INSURANCE SINCE 1977] Banks, Insurance Companies, Securities Firms Switzerland Swiss Financial Markets Authority [SINCE 2007] Banks, Insurance Companies, Stock Exchanges, Securities Dealers, Other Financial Intermediaries BaFin supervises while Bundesbank monitors 12

13 New U.K. Integrated Financial Regulator Source: U.K. FSA: Journey to the FCA, October The PRA will have the power to deploy a veto where it considers the action we are taking may threaten financial stability, or cause the failure of a PRA authorized person in a way that would adversely affect financial stability. 13

14 PRA Approach to Insurance Supervision Judgement Based Forward Looking International Perspective Objectives Driven Risk Adjusted Collaborative 14

15 Insurance Core Principles (ICPs)* Standards & Guidance for Supervisors Group-Wide Supervision ICP 23 Suitability of Persons ICP 5 Corporate Governance ICP 7 Conduct of Business ICP ICPs Risk Management & Internal Controls ICP 8 *As amended 12 October 2012 Intermediaries ICP 18 Capital Adequacy ICP 17 ERM for Solvency Purposes ICP 16 15

16 Financial Sector Assessment Program (FSAP) Created in late 1990 s aftermath of the Asian financial crisis Reinvigorated after GFC in 2008 Conducted by the IMF for developed economies A portion of FSAP is assessment of compliance with ICPs (which are international standards) Done for U.S. in

17 2010 FSAP Key U.S. Insurance Findings Difficulty of assessment: Over 50 separate authorities Insurance Regulation is generally thorough and effective, although there are areas where development is needed: Supervisory Independence Policy Framework in relation to insurance/financial stability and international issues Fit and proper Limited requirements on governance, internal controls and risk management Not generally focused on group-wide supervision Lack of uniformity and proactive work respecting market conduct Anti-money laundering 17

18 FSAP Going Forward Peer review Desk Audit on progress since last FSAP due in 2013 Thematic reviews on single subjects for all G-20 countries simultaneously will be done periodically Next U.S. full sector assessment due in 2015 (Mandatory for U.S. and 24 other countries per IMF) 18

19 International Agreements G-20, FSB, IMF, et al. ICPs ComFrame MMoUs Trade Agreements 19

20 Wither U.S. Insurance Regulation? United Kingdom Financial Services Authority 20

21 Washington, DC Atlanta Brussels Dubai Hong Kong London Milan New York Paris San Francisco Singapore Sydney Tokyo Toronto