Florida Insurance Commissioner Kevin McCarty to Testify at Two of Three Congressional Hearings on Insurance Regulation This Week
Apr 27, 2015
Florida Insurance Commissioner Kevin McCarty will testify in Washington D.C. on various aspects of insurance regulation in two of three separate Congressional hearings on the topic this week.
He begins tomorrow, April 28, 2015, with the U.S. Senate Committee on Banking, Housing and Urban Affairs, following that with an appearance before the U.S. House Financial Services Insurance and Banking Subcommittee the next day.
The Senate Banking, Housing and Urban Affairs’ Securities, Insurance, and Investment Subcommittee will hold a third hearing on April 30 focusing on insurance capital standards and the Financial Stability Oversight Council.
Specific information on each hearing is provided via hyperlink below:
Commissioner McCarty, whose written testimony was published in advance of tomorrow’s Senate hearing, will present on behalf of the National Association of Insurance Commissioners, which he currently serves as ComFrame Development and Analysis Working Group Chairman.
To access his prepared remarks, along with those of fellow panelist and Federal Insurance Office Director Michael McRaith, click here.
In his statement, Commissioner McCarty underscores the NAIC’s support for the pending S. 798, also known as the “Policyholder Protection Act,” saying that it is designed to ” . . . clarify to clarify (regulators’) existing authority to wall off (an) insurance legal entity from contagion elsewhere in (a large, diverse financial) group.”
Commissioner McCarty explained that a critical distinction separating banking and other financial products such as insurance is that, unlike banking products, insurance does not transform short-term liabilities into longer-term assets. Rather, insurance has shorter duration liabilities in many of its property and casualty, as well as health product lines, the assets of which are held short-term. Insurance has longer duration liabilities in life and annuity product lines. These liabilities are similarly matched against longer-term assets.
Alluding to the Senate’s April 30 Securities, Insurance, and Investment Subcommittee hearing in which he will not officially testify, Commissioner McCarty used his written remarks to remind lawmakers that insurance capital standards are intended to be used as an addition, not in lieu of state risk-based capital standards as applicable to insurers within large financial groups.
On behalf of the NAIC, he encouraged the Federal Reserve to work closely with regulators to ensure any new standards that may be imposed complement states’ existing regulatory authority.
“We supported the passage of the Insurance Capital Standards Clarification Act last year to give flexibility to the Federal Reserve to tailor its capital rules for these companies,” he said. “We are hopeful that the Federal Reserve will utilize this flexibility to apply capital rules to these entities that are consistent with the insurance business model and our legal entity regulation and we are committed to assisting them in this important endeavor.”
The European Union (“EU”) is moving forward with a comprehensive overhaul of financial regulations, which includes new solvency requirements for European insurers known as “Solvency II.” With an effective date of January 1, 2016, these new requirements seek to better match the risks assumed by insurers with corresponding capital requirements. Many U.S. insurance companies have expressed concern that their European subsidiaries may be subject to stricter regulation (such as higher capital requirements) than their European competitors if EU regulators do not find that the U.S. state-based regulatory regime is equivalent to that of the EU.
Therefore, because the EU is the U.S.’s largest trading partner in insurance services, U.S. insurers are eager to avoid being placed at a competitive disadvantage against their EU counterparts.
To read the complete House Financial Services memorandum on the issue, click here.
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