The introduction of collateral reinsurance standards could seriously harm American insurers, according to the National Association of Insurance Commissioners (NAIC).
NAIC president-elect John Huff testified before Congress on 29 September at a hearing on the impact of domestic regulatory standards on the US insurance market.
Huff, who also serves as the Missouri insurance director, testified: “Despite extensive state responsiveness, we understand that the treasury department and the US Trade Representative (USTR) are preparing to start negotiations on a covered agreement with the EU to address further reduction of reinsurance collateral.”
“We question whether a covered agreement or any formal action by the federal government is necessary to resolve equivalence as it is clear that recognition can be achieved through other mechanisms.”
The EU-US agreement would address reinsurance collateral and resolve uncertainty for US insurers as a result of the EU’s equivalence process under its new solvency regime, Solvency II.
This could pre-empt state laws and progress on reinsurance reforms, according to Huff, who believes that the Treasury and USTR have simply not demonstrated benefits to US insurers or consumers that would warrant the need for entering a covered agreement pre-empting state law.
Huff also took issue with the Financial Stability Oversight Council’s (FSOC) decision to designate insurance companies Prudential and Metlife as systemically important financial institutions.
He said: “The FSOC has now voted twice to designate insurance companies over the objections of members who know the insurance industry best.”
“In the case of Prudential, I issued a dissenting statement because I believed FSOC’s rationale for designation to be flawed, insufficient, and unsupportable.”
“Neither the designated companies nor the primary regulators have been given the insights necessary to de-risk the firms. This is unacceptable and contributes to, rather than reduces, risk to the financial system.”
