FSB peer review recommends major changes for US regulation
The United Kingdom’s Financial Stability Board (FSB) issued a peer report indicating that the US could improve insurance supervision in a number of areas.
According to the report: “significant additional work is required” on the architecture of insurance supervision in the US. The FSB recommended greater regulatory uniformity and limited rights to pre-empt state law. The FSB also argued that the Federal Insurance Office should enhance its monitoring of the insurance sector and be further strengthened; in addition, US authorities were encouraged to enhance insurance group supervision by introducing requirements for consolidated financial reporting for all insurance groups and by giving lead supervisors additional powers to fully assess the financial condition of the entire insurance group.
The FSB also recommended that US state authorities implement prior recommendations concerning the terms of state commissioners’ appointments, the rulemaking powers of state insurance departments and their funding and staffing to bolster specialist skills.
The European Insurance and Occupational Pensions Authority (EIOPA) told Bermuda:Re that they have been in discussion with the US since early 2012. A spokeswoman for the organisation said: “EIOPA is going to carefully consider the FSB peer review report of the United States as the issues examined in the publication are very relevant for our activities and objectives.”
Mike Nelson, chairman of Nelson Levine, told Bermuda:Re that any actions taken by the US on regulation would directly affect Bermuda reinsurance companies. However, according to Nelson, action on this report's recommendations are unlikely. He expained: "many of the recommendations will likely be seen by some state regulators as an unwarranted criticism and a call for a stronger Federal Insurance Office (FIO) – or even a federal regulator – which clearly has been opposed by many of the state-based authorities."
He continued: "even if there was the intent to take action on the report’s recommendations, the federal government is not in a position to make many of the changes suggested. After all, some of the recommendations call for a change in the way state regulators are empowered and receive resources and funding. Adopting these recommendations would fundamentally change the traditional role and powers of state governments."
According to Nelson, legislators have historically been reluctant to undertake one of the peer review's primary recommendations: a unified regulatory regime. However, a report from the FIO on "how to modernize and improve the system of insurance regulation in the [U.S.]” will be released as yet another challenge to state regulation. Nelson said: "the report is to address 'the degree of national uniformity of State insurance regulation,' 'the costs and benefits of potential Federal regulation of insurance across various lines of insurance,' and 'the ability of any potential Federal regulation or Federal regulator to provide robust consumer protection for policyholders.' Inherent in this charge is a concern that state regulation may not be completely adequate.
Access the full peer review here.