Ted Nickel is Wisconsin’s insurance commissioner and the new president of the National Association of Insurance Commissioners (NAIC). He spoke at the recent Insurance Information Institute (I.I.I.) 23rd Annual Joint Industry Forum and made the case for radical changes in the direction the Financial Stability Oversight Council’s (FSOC) has been taking.
Nickel said the FSOC and its liberal use of the SIFI (systemically important financial institution) and how it arrives at decisions about who should or should not be SIFI designated, is misguided.
“We’re going to be advocating for a repeal of the FSOC designation process,” Nickel said.
And if the FSOC should survive, Nickel said the NAIC wants “a vote on that board, particularly when they’re voting on matters of financial significance to insurers.”
The current insurance commissioner position on the council has no vote. Today it’s Peter Hartt who directs New Jersey’s insurance division. “I think monitoring solvency of insurance companies is best done at the state level. I don’t think the federal labeling of insurance companies [as systematically important] through the FSOC process has been particularly helpful given the fact that there’s no off ramp,” Nickel said.
That said, Nickel told the group that not everything about the FSOC is negative. “Its best purpose would really be to gather on a regular basis and talk about and identify areas of systemic importance to the financial system of the U.S,” he noted.
And it in those conversations — Nickel said — where positive change will occur.
“I think that’s one of the two jobs that they have that — my understanding is — they don’t spend a lot of time doing. My understanding is they spend a lot of time on the designation process. And if they would spend more of their time on gathering information on trends in the economy or trends globally that could wash up on our shores and result in financial peril, I think it would be beneficial to everybody. If they refocus their efforts, that would provide a lot of value,” Nickel concluded.
The new NAIC president and Ian Adams of the R Street Institute and The Wall Street Journal Editor Leslie Scism also talked about the fate of the Federal Insurance Office (FIO) under a Trump administration bent on limiting the power of the Dodd-Frank Act.
Scism thinks a rollback of Dodd-Frank will happen and will likely be in one of three ways. “One way is to do this legislatively. Another might be through the FSOC process as Trump’s appointees…populate the FSOC,” she said.
The editor pointed out that the Democrats never did make the case for Dodd-Frank being able to put enough roadblocks in place to prevent another Great Recession or an economic collapse.
“From what my colleagues in Washington have picked up, there’s a lot less enthusiasm — maybe there’s no enthusiasm to have insurers designated as systemically important. The case hasn’t been made that Dodd-Frank will prevent a collapse. There just aren’t the signs that these insurers are putting the financial system at risk. That hasn’t been presented in materials made public,” she added.
Looking at AIG, Scism said the big problem that led to its collapse and the danger to the world’s economy is that it was not overseen by state insurance officials but by the federal Office of Thrift Supervision. “I think a lot of what the states have done since the collapse is to recognize that they have to take into consideration other parts of a big financial conglomerate that aren’t regulated by the states and have a handle on those other parts,” she said.
Nickel agreed. “If an insurance regulator start[s] doing an analysis of a very large company, we don’t have to have a special designation. We just, we get in there and we take care it. We take care of the financial issues as they arise at varying levels of increasing oversight,” he said.
Peter Hancock — who is AIG’s CEO — doesn’t think much about Dodd-Frank or think a change will let AIG off the hook. “To date, designation as a SIFI has not hindered us in pursuing our true north of maximizing intrinsic value, returning capital and optimizing our business in a way that makes sense. There’s a modest cost for complying with SIFI regulation over and above what we are already investing in controls,” he said.
And what if Dodd-Frank and its regulations are changed by President Trump and Congress? Hancock said, “For us, it just simply isn’t a binding constraint on our capital returns and our objectives …. We’re focused very much on managing our capital prudently, being compliant with whatever regime exists. And even if FSOC’s SIFI designation authority were to change, AIG would still have FSB [Financial Stability Board] and G-SIFI to worry about — and 200 other regulators.”
Nickel got in the last word and said, “I don’t have any problem with a gazillion-dollar company. If they’re handling themselves, if they’re working [through] problems. If they’re collecting premiums, paying claims, doing their investments. I don’t care how big [the insurers] are. It shouldn’t be the size of the company that just automatically puts them in the crosshairs of a third party, in this case, FSOC, and in many cases on the European front [with] some of the designations that FSB makes. The role of the regulator shouldn’t be to strong arm and … threaten companies to get smaller or else. That’s just not a good way to regulate,” Nickel said.
And the bottom-line?
“I regulate, and my folks regulate based on risk. Too big is not a risk to me. A risk is doing dumb things and not having yourself positioned accordingly, not thinking about future areas that might be of concern and addressing those upfront” he said.
Source link: Insurance Journal