16 August 2013

Risk.net: NAIC calls for coordination of US and international systemic risk regimes

Global and US initiatives to supervise systemically important insurance companies need to be coordinated to ensure that international rules are enforceable in the US, according to officials at the National Association of Insurance Commissioners.

US insurers, Prudential Financial, MetLife and AIG, were designated as global systemically important insurance companies (G-SIIs) by the Financial Stability Board (FSB) in July. At the same time, large US insurers are also currently going through a domestic process to determine whether they are systemically important financial institutions (Sifis).

Insurers deemed to be G-SIIs will face additional capital requirements and be made to develop recovery and resolution plans. However, lawyers say there is no mechanism under US law to impose these additional regulatory requirements on US G-SIIs if they are not also designated as Sifis.

"It's our position that [the processes] do need to be coordinated and that the G-SII [regime] should be consistent with the US SIFI [regime], because the process of determining the Sifis has a statutory process in place, and that may not be the case with the FSB's [regime] for G-SIIs", says NAIC chief executive Ben Nelson, based in Washington DC.

The comments come as Prudential Financial is appealing its status as a US SIFI with the Financial Stability Oversight Council (FSOC). If it wins this appeal, and escapes a SIFI designation, lawyers says it is unclear whether any US regulator would have authority to impose G-SII policy measures on the firm.

The outcome of Prudential Financial's appeal may not be known until early October. But legal experts say the challenge is likely to be unsuccessful as the FSOC has the power under the Dodd-Frank Act to re-designate Prudential as a Sifi even if the insurer wins its initial appeal.

The FSOC has broad discretion in both selecting the information used for assessing the systemic risk posed by an insurer and interpreting that information in making its designation. A firm is assessed against six categories: size, interconnectedness, leverage, liquidity risk, maturity mismatch and existing regulatory scrutiny.

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