The United States may refuse to apply new global capital rules in the world’s biggest insurance market because of the “breakneck speed” they are being pushed through, American regulators said on Monday.
The National Association of Insurance Commissioners (NAIC), made up of state insurance regulators, said there was no proven need to bring in the world’s first insurance capital rules.
Top NAIC officials visiting London said that the push by global regulators to agree such rules within three years and “without adequate analysis” was a major concern because policyholders would foot the bill for any extra capital demanded.
“This is breakneck speed….Where’s the need?” Monica Lindeen, the insurance regulator for Montana and NAIC president-elect, told Reuters in an interview.
U.S. regulators want to preserve capital requirements on a local basis to protect policyholders, and reject a wider approach, she added.
The first of the new rules from the International Association of Insurance Supervisors (IAIS) will be put to leaders of the Group of 20 economies, which includes the United States, for endorsement when they meet in November.
The aim is to shield taxpayers from having to bail out any insurer in trouble.
The first of the three rules, the basic capital requirement or BCR, would apply from 2019 to nine insurers deemed so significant that their failure would damage the global financial system.
During the 2007-09 crisis, the U.S. government had to stabilize AIG with a taxpayer funded bailout that eventually topped $180 billion.
The nine, which also include Allianz, AIG, MetLife and Generali, will also have to hold a cushion of so-called higher loss absorption capacity or HLAC, typically debt that can be quickly converted into capital in a crisis.
This cushion will be detailed in 2015 and, in the following year, the IAIS will write the third rule, an international capital standard for the top nine insurers as well as other sizeable insurers that operate r.
‘It Can’t Be Forced On Us,’ Says Nelson
The IAIS has yet to say what the combined capital from the first two rules amounts to, and some insurers like MetLife are building up their reserves to be on the safe side.
Lindeen said U.S. insurers were already properly capitalized and declined committing to applying the new global standards.
“Until anybody sees it then it’s hard to say. If it’s going to hurt the consumer and if it’s going to hurt our market, that’s an issue,” Lindeen said.
Ben Nelson, chief executive of the NAIC, which takes part in the IAIS discussions, said the United States was not alone with its concerns and could decide to reject the new rules.
“If the U.S. is not part of it, then is it a global rule? That’s not a threat, it’s a question because it can’t be forced on us legally,” the former U.S. senator told Reuters.
“We are trying to work to get more information as opposed to simply saying no, but there may be a point in time that we say it won’t happen, we just can’t be there … We are reserving the right to say that’s a bridge too far,” Nelson said.
IAIS Secretary General Yoshi Kawai told a banking conference this month he was “totally confident” a BCR would be developed in time for the G20 summit in November.
“It will come and you should prepare,” Kawai said. “HLAC should be meaningful otherwise why do we do this system?”
After banks’ central role in the financial crisis, tougher capital rules for lenders, known as Basel III, are already being rolled out with full compliance required by 2019.
Pressure from markets and supervisors means that big banks meet or exceed Basel III well before the deadline, and MetLife expects a similar fate for insurers.
“Our investors care about this very much. We get a lot of questions,” John Hele, MetLife’s chief financial officer, told the same conference Kawai spoke at.
(Reporting by Huw Jones; Editing by Pravin Char)