WASHINGTON–International regulatory and industry executive panelists discussing the International Association of Insurance Supervisors' ComFrame (Common Framework) global-supervision approach diverged a great deal on key issues such as a timetable for implementation, what the framework will ultimately look like and who will supervise.

There are still very distinct views separating the European approach and the U.S. approach on ComFrame says an executive at a large multinational life insurer after the panel.

Other observers note a lack of cohesion on many elements within Europe, while the U.S. policy remains unclear.

Federal Insurance Office Director Michael McRaith, who is now chair of the IAIS Technical Committee, mediated the ComFrame discussion at IAIS' annual conference in Washington yesterday.

“ComFrame has drifted apart and everybody recognizes that,” says NAIC President and Florida Insurance Commissioner Kevin McCarty, who spoke at the meeting but was not on the panel.

Connecticut Insurance Commissioner Tom Leonardi was adamant that capital and some other quantitative standards should not be imposed globally and supersede local regulation, which McCarty has said before.

“What if we do it and we get it wrong?” McCarty said in a brief interview afterward—that in itself would be systemically risky, he argues.

Leonardi, who sits on nine supervisory colleges, said that “to have a lead regulator that has ultra powers would be detrimental.” Leonardi also said the process should not create an unlevel playing field and have unintended consequences for the Internationally Active Insurance Groups (IAIGs) versus all other entities.

Leonardi said a successful model was the NAIC Model Holding Company Act, which Connecticut passed in June. It gives the state-insurance regulator power to oversee all parts of a group, to participate in supervisory colleges, and to ask for the financials of any part of the insurer, even if it's “a railroad company in South Africa” or a company in an unrelated business in Japan. The act also allows for confidentiality of data, which the state financial exams law do not. Additionally, under the act, the regulator may charge expenses back to the insurer.

Gabriel Bernardino, of the European Insurance and Occupational Pensions Authority (EIOPA), emphasized that a common language was needed, but cautioned “we need to be clear on what we mean by a 'common language.'”

Bernardino said it was important to make sure “we are capturing the real risks at the group level.”

In response to a question posed by McRaith to panelists on how far ComFrame should push developing global capital standards, Bernardino said, “Here we have an opportunity. We should have a global standard for insurers' group supervision. It needs to be quantitative and qualitative…with a clear role for the group supervisor. I believe it needs a group-capital requirement. Can we achieve it tomorrow? No.”

The IAIS released a ComFrame working draft on July 2, 2012 for a two-month public-comment period that ended August 31. The 2012 ComFrame Draft marks the completion of the second step in its three-year-development phase, which should wrap up less than a year from now.

There is still uncertainty and disagreement regarding ComFrame's substance. Most insurers want to focus on cooperation and coordination, but don't want specific metrics to measure them. Insurers are also concerned about the consequences of being identified as “internationally active.”

Speaking to the challenges of finding conformity, Philippe Brahin, head of governmental affairs at Swiss Re, notes that a mosaic of regulatory regimes needs to be harmonized. “ComFrame is very ambitious and the timeframe is quite short,” he said.

Nicholas D. Latrenta, general counsel of MetLife, said on the panel that “the successful implementation of ComFrame is going to be vital for the smooth functioning of these groups in the future.” What the IAIS is doing, he said, “is very complex, very critical and very controversial—harmonizing the regulatory thrusts of the major insurance sectors is important but its complexity can't be undersold. The choices have consequences. Should they be prescriptive or guidelines?”

Latrenta, whose company is likely subject to be designated systemically important and internationally active by domestic and international bodies, stressed that insurance companies are different from banks, and even from each other across the different lines from life to property to health. He emphasized that one set of standards certainly won't suit everyone.

Brahin, of Swiss Re, cautions that getting it wrong could result in an unlevel playing field.

“You have Solvency II, the [NAIC's] Solvency Modernization Initiative developing, and so forth. All of these are still underway and there we are trying to develop a global standard—we need a field test to get to the right calibration,” Brahin said.

On a subsequent IAIS panel addressing frontline regulators and their roles, Ernst Csiszar, a business professor at University of South Carolina, noted, “We are all fighting the last war.” He said aside from clamping down on risk, which has its own consequences of inhibiting innovation, there is a shift in the regulatory mindset from solvency measurements to a risk-management type of system, requiring new kinds of tools—not just old metrics and ratios, but the experience and judgment of those in the industry. Csiszar said he was fearful of new skills the regulators are going to need, which won't just be a checklist for risk measurement.

Special Reports /

ComFrame Has 'Drifted Apart' as Consensus on Ambitious Framework Remains Elusive

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