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NAIC urges more reform on its model act regulating insurers


The National Association of Insurance Commissioners' decision to open its model act on regulating insurers is drawing industry praise and apprehension.

At their spring meeting in Orlando, Fla., NAIC commissioners voted to reopen the act for comment on establishing groupwide supervision of insurers. Currently, there is no uniform way in the United States to supervise all entities within an insurance holding company as a group.

While state adoption is voluntary, the NAIC's model acts carry weight with state legislatures.

The move to amend the NAIC's Insurance Holding Company System Regulatory Act, which last was changed in 2010, has come in the face of international initiatives to supervise insurance holding companies on a groupwide basis — rather than unit by unit — as well as regulate systemic risk and capital standards.

“In light of the recent financial crisis and the globalization of the insurance business models, U.S. insurance regulators have begun to modify their group supervisory framework and have been increasingly involved in developing an international group supervisory framework,” the NAIC said in a January statement.

“The main thing they will be focusing on is developing a uniform process through the development of uniform language” so state regulators can determine who is the groupwide supervisor, said Adam Kerns, assistant general counsel of the American Insurance Association, which supports the move.


Five states either have a law or are considering legislation that would provide groupwide supervision, said Michelle Rogers, director of financial and regulatory policy for the National Association of Mutual Insurance Cos. in Indianapolis. Pennsylvania and Iowa already define a groupwide supervisor as being the supervisor of an internationally active insurance group, she said.

Ms. Rogers said the NAIC is looking at four aspects of the model insurance holding company act:

• Give clear legal authority for state regulators to supervise internationally active U.S. insurers;

• Make it clear that the state regulator has direct supervision over the entire group, particularly to establish capital requirements;

• Require such insurance groups to report their financial activities globally; and

• Require international groups and other large companies to provide a resolution plan in case of insolvency.

“The problem that the industry is facing is that Europeans are united in their views and are pushing forth a lot of ideas that the U.S. industry is not very favorable toward. But when it comes time to respond to those, the U.S. industry is at a disadvantage because there is not uniformity in the U.S.,” said Lawrence Mirel, a partner in the Washington office of Nelson Levine de Luca & Hamilton L.L.C. and former District of Columbia insurance commissioner.

The NAIC proposal, he said, attempts to achieve greater consensus among U.S. regulators.


Differing state regulation is “not an ideal situation from the insurer perspective,” said Joanne Zimolzak, a partner in the Washington office of McKenna Long & Aldridge L.L.P. and head of the firm's insurance division. She also said conflicting approaches could be a problem for international insurers expanding in the U.S.

But some observers warned against moving too quickly.

“It does need to be made more consistent among the states, but it needs to be flexible enough to fit the concentration of business within the holding company,” said Ken Levine, a partner in the West Palm Beach, Fla., office of Cozen O'Connor and a former Florida insurance regulator.

“My concern is they not overmedicate the patient,” he said. “You may have a holding company system that's made up primarily of noninsurance-type entities, and do they really want to start regulating restaurants that may be affiliates? If the holding company system is made up entirely of insurers, it makes perfect sense to jump in there.”

“Regardless of what's added, the big concern that we have is that we don't get a layering impact that actually increases the cost to consumers,” said David Snyder, senior vice president in the Washington office of the Property Casualty Insurers Association of America.

“The NAIC had addressed issues that were perceived to have arisen during the financial crisis,” said Steve Broadie, vice president for financial policy at PCI in Chicago. “There is authority for states to participate in supervisory colleges, which we think is a very good development.”

Supervisory colleges, which consist of the regulators overseeing an insurance group and its individual insurance legal entities, are led by a groupwide supervisor.

Mr. Snyder said participation in the supervisory college allows regulators to become more efficient and effective. “We're not seeing a need for a major new layer of regulation,” he said.