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The recent meltdown in our nation’s financial markets has led to calls from Congress, the Administration and the general public to act to stem the hemorrhage. President Obama has promised at least an outline of comprehensive financial services regulatory reform by the next G20 meeting in early April. The NAIC has offered its support as a full partner with Congress and the Administration in plugging the regulatory gaps and ensuring a cohesive national financial regulatory system. State insurance regulators have been, and remain, a key component of the nation’s financial regulatory system, and efforts to manage systemic risk should not preempt strong solvency and consumer protections in the States.
Key Points:
- Insurance has been a relative island of calm in an otherwise turbulent financial sea. Financial regulatory reform efforts should not undermine the part of the system that works by unnecessarily preempting state regulatory authority.
- Solvency and prudential oversight by functional regulators is NOT the same thing as systemic risk oversight. Solvency is the strongest consumer protection for insurance and should remain at the state level.
- Proponents of federal regulation for insurance point to AIG, but AIG’s insurance subsidiaries did not cause the problem. Rather, AIG’s Financial Products unit, which wrote hundreds of billions of dollars worth of credit default swaps (CDS), created the problem.
- Insurers are more often the recipients of systemic risk than the creators of it. Managing systemic risk will require greater transparency in the capital markets so that insurers and their regulators can manage exposure to credit and investment risk.
- Better collaboration and coordination among regulators, and appropriate information sharing protocols, will make significant improvements in financial stability.
- Group supervision of complex conglomerates, such as through supervisory colleges, ensures that problems are identified and mitigated before they ripple through other sectors of the financial markets.
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