AIA Cautions NAIC on Global Market Turmoil

The American Insurance Association (AIA) recommends that the National Association of Insurance Commissioners (NAIC) strongly consider the current global market turmoil when addressing issues such as the modification of reinsurance collateral rules, climate change disclosure and market regulation accreditation at its national meeting Dec. 5-8 in Dallas.

“Now is the wrong time to modify the current collateral rules and increase the uncertainty that U.S. insurers will receive prompt and appropriate payments of amounts due under contracts with alien reinsurers,” said Steven Bennett, AIA assistant general counsel. The rules were originally adopted in response to several insurer insolvencies during the 1980s caused in large part by the inability of those insurers to recover payments due from alien reinsurers.

“The chief goal of all regulators and stakeholders should be to best secure insurer solvency,” added Bennett. “It is difficult to understand why U.S. regulators would propose dramatically changing a system, with no known problems, to one that would allow alien reinsurers to maintain few or no assets within the U.S.," concluded Bennett.

AIA is encouraged by the new direction taken in the NAIC’s recently released compromise plan on climate change disclosure. AIA strongly opposed the NAIC’s previous plan which proposed that climate change disclosures, including speculative public information, be included on an insurer’s Financial Annual Statement (FAS).

Under the new proposal, insurers are asked to answer generalized questions as part of a survey. AIA is currently studying the proposal’s implications and will be submitting its formal comments on the new plan by the Dec. 15 deadline.

“Apparently there has been substantial progress and we are actively reviewing it with our members,” said David Snyder, AIA vice president and assistant general counsel. “Insurers were wary of the previous plan given its onerous public disclosure requirements and potential for new litigation exposure. We are pleased that these concerns have been taken into account in developing the new plan. Insurers are already responding to consumers’ interest in climate change by offering “green” insurance products, as well as increasing their advocacy of responsible measures to reduce risk, including land use controls, stronger building codes, and alternatives to single occupancy vehicles,” concluded Snyder.

AIA continues to express concerns about the Market Regulation Accreditation Proposal. The proposal includes a market analysis requirement which requires states to participate in a market conduct annual statement or MCAS in order to receive accreditation. AIA believes that regulators may need to seek legislative and/or contractual changes in order to appropriately act consistent with the proposal.

In addition, the NAIC should take significant steps to make necessary operational or data enhancements that are needed prior to implementation. AIA recommends that the NAIC wait to include market analysis as a component of the accreditation proposal until the MCAS process has a chance to further mature.

“While advancements in market regulation are important steps in modernization, choosing the appropriate standards and implementation period is an imperative first step,” said Lisa Brown, counsel at AIA. “Currently, the majority of jurisdictions have yet to fully participate in a market conduct annual statement (MCAS) cycle. We need to allow the MCAS process to further mature before full-implementation. Otherwise, we could be putting the cart before the horse,” Brown concluded.

The property/casualty industry has historically been one of the most competitive sectors of the U.S. economy. AIA believes that market regulation should promote healthy, growing private markets that benefit consumers.

According to the AIA, the NAIC should focus on consumer protections that seek to preserve safety and soundness in the financial services marketplace rather than promoting or adopting proposals that could be harmful during a difficult economic period.