On April 21, I participated in a stakeholder teleconference convened by the Resolution Working Group (ReWG) of the International Association of Insurance Supervisors (IAIS). ReWG, chaired by Alex Hart (a deputy in the U.S. Federal Insurance Office), is writing an application paper for use by global regulators in establishing and administering resolution powers in their country. James Kennedy from the Texas Department of Insurance and chairman of the NAIC Receivership and Insolvency Task Force also serves on the working group.
Prior to the meeting, NCIGF and NOLHGA submitted a joint letter that underscored two major points:
- Policyholder protection schemes (PPS) are important partners in the insurance resolution process and not merely a source of funding; and
- Early involvement in a resolution is a critical element of policyholder protection
We engage in these international processes because the concept of insurance resolution is evolving around the world. NCIGF and NOLHGA have been successful in persuading the IAIS that the protection of policyholders is equal to protecting counterparties when an insurance carrier fails which is not where the discussion started. Having made that case, the next objective is to continue to press the case for the importance of partnership between regulators and guaranty funds.
Bringing the guaranty fund system into the process at the earliest possible point of the liquidation leverages expertise and practices that will result in a seamless experience for the policyholder and support of the insurance promise. These are the same points we are making to our domestic regulators. It’s resulted in our inclusion in the confidential Receivership Financial Analysis Working Group (RFAWG) and has persuaded insurance receivers to consult with us much earlier to help our members to be better coordinated.
There’s also a parallel process underway at the European Insurance and Occupational Pensions Authority (EIOPA) intended to harmonize resolution authority across the European Union.
The EIOPA initiative matters to us because European regulators prefer having significant levels of capital already on hand with which to resolve an insurer failure, while the U.S. system is a post-event model. Our goal with EIOPA is to make the case that there is no one way to pay for an insurance resolution. We want to keep the established and effective U.S. post-funding mechanics intact.
NCIGF has been working closely with the International Forum of Insurance Guarantee Schemes (IFIGS), of which we are a member, to take make this case, most recently at an EIOPA stakeholder meeting in late February.
IFIGS was asked to moderate a session on harmonization for EIOPA officials. While there’s been no final declaration from EIOPA officials, indications are that the U.S. argument in favor of multiple funding mechanisms was favorably received. I will keep you posted.