23 April 2013

Risk.net: 'Prescriptive' ComFrame criticised by American insurance industry

The international project to develop a framework for supervising international insurance groups is in danger of exceeding its original purpose and loading a new and unwelcome layer of standards and regulations onto insurers, the American Insurance Association (AIA) warns.

The International Association of Insurance Supervisors (IAIS), which is developing the so-called ComFrame initiative, insists that the project's goal is to construct "a framework for supervisors to efficiently and effectively cooperate and coordinate" their supervision of internationally active insurance groups (IAIGs). But American insurers have voiced concerns that the framework is evolving into a prescriptive set of rules that will mesh awkwardly with the existing layers of national and subnational regulation that characterise the US system. The warning follows the publication on April 4 of an update from the IAIS on its work developing ComFrame, which is scheduled for field testing in early 2014.

Stephen Zielezienski, senior vice-president and general consul for the AIA in Washington, DC, says: "We have some concern that they [the IAIS] are getting away from the concept of this being a process of coordination and cooperation, and respect of different national regimes, and more towards an attempt to apply a new set of regulatory standards. They say in the update that ComFrame is not meant to be ‘highly prescriptive', but by virtue of using that modifier ‘highly', they have basically admitted that part of it is meant to be somewhat prescriptive."

The AIA's concerns are echoed by insurance industry think-tank, The Geneva Association. Kathrin Hoppe, Basel-based regulatory expert at the association, says: "Our members are of the opinion that the different solvency regulations currently in development around the globe should be finalised first. They are concerned that the IAIS is intending to create an additional supervisory layer when they do not know what these bases are going to be. Our members are saying you have got to look at what is done nationally so as not to create a system that is incompatible with national systems."

The update from the IAIS specifies that ComFrame will set out a series of quantitative and qualitative requirements for both supervisors and IAIGs. This appears to be an evolution from the wording of the 2011 concept paper, which stated ComFrame "will be outcome-focused" and "not rule-based".

In addition to concerns over the threat of an increased regulatory burden arising from the framework on IAIGs, the status of the group supervisor under ComFrame is another potential area of controversy. The NAIC has consistently argued that a group supervisor should not have the power to override the rights of local jurisdictions in the course of this objective. "Group supervisors should be prepared to coordinate activities and undertake leadership duties but, because one jurisdiction cannot override the authority of another jurisdiction, they should not be empowered to stand above local supervisors", says the NAIC spokesperson.

Full article (Risk.net subscription required)

© Risk.net