Last Updated 6/15/16

State insurance regulators interact with several international organizations in much the same way as they do the various federal agencies. The Financial Stability Board (FSB) was established to coordinate at the international level the work of national financial supervisors and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It is sponsored by the Group of Twenty (G-20) countries with a broad charge to promote financial stability throughout the world. The FSB’s purpose is similar to that of the Financial Stability Oversight Council (FSOC) in the U.S.

The severity of the 2008 global financial crisis underscored the interconnected nature of financial institutions, as well as the risks they pose to the financial system when they are in distress. Phrases like “too big to fail” and “systemically important” continuously made news headlines in the midst of the crisis. While the insurance industry was not the root cause for of the financial crisis, insurance markets have become increasingly global and interconnected, and activities they engage in have become increasingly tied to the financial markets. As such, the FSB asked the International Association of Insurance Supervisors (IAIS) to set up a process to assess insurers’ systemic risk, and to recommend policy measures designed to prevent catastrophic failure in the sector.

In July 2013, the FSB identified a list of nine multinational insurance groups it considers to be global systemically important insurers (G-SIIs), including three based in the U.S. The FSB chose these insurers because it believes that should one of them become insolvent and fail in a disorderly manner, it could have negative impacts on the stability of the global financial system. The G-SII list is updated annually, based on information provided by the IAIS and published by the FSB each November. Furthermore, the FSB and IAIS have been developing a framework of policy measures that will be applied to G-SIIs with the objective of reducing the negative externalities stemming from the potential disorderly failure posed by a G-SII. The three main types of policy measures are: 1. enhanced supervision, 2. effective resolution, and 3. higher loss absorbency.

For 2014, there were no changes to the list and the FSB decided to postpone a decision on the G-SII status of reinsurers, pending further development of the methodology. The FSB published the new G-SII list in November 2015. The list is again composed of nine total insurers, although they are not all the same insurers as the previous years. The decision to include reinsurers is still being discussed.

It is important to note that FSB’s G-SII list is advisory only and non-binding. State insurance regulators and the NAIC have been engaged with the IAIS Executive and Financial Stability Committees in this work, and domestic state regulators have been involved on a company-by-company basis. In the U.S. the FSOC, established under the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, is authorized to address systemic risk and has its own process for evaluating and designating domestic systemically important insurers. The FSOC has designated all three U.S.-based G-SII-listed insurers as systemically important. The FSOC statutory and regulatory process makes no reference to the FSB or G-SIIs, so it is not clear how the FSOC could consider a G-SII unless that firm would otherwise be considered a domestic systemically important financial institution (SIFI).

Insurance regulation in some other nations is approached from the group rather than the entity level as it is here in the U.S. Other nations also tend to have consolidated regulators covering insurance, banking and securities. , Therefore, it is not surprising the FSB is pushing the IAIS to adopt international insurance group capital standards to apply to G-SIIs. The IAIS is developing backstop capital requirements (BCRs) which will eventually serve as a basis for work on higher loss absorbency (HLA) capital measures for G-SIIs. More information can be found on the NAIC Capital Position Statements.

The NAIC Financial Stability (EX) Task Force mission is to consider issues concerning domestic or global financial stability as they pertain to the role of state insurance regulators and serves as a forum to coordinate state insurance regulators' perspective on a wide variety of issues arising from the designation of U.S. insurance groups as "systemically important" both pre- and post-designation.