The standards and accompanying guidance papers address the risk-management practices of insurers, the role of models and the necessity of managers and regulators to understand and communicate the results of these tools and practices. Nonetheless, the support comes with the realization that the current crisis in financial markets raises a number of critical issues regarding the practices of all financial institutions.
“To date, insurance companies have not been the source of the failure of major financial institutions, but there are undoubtedly valuable lessons to be learned,” said Virginia Insurance Commissioner Al Gross, who chairs the IAIS Technical Committee. “Adoption of these papers is the first step in creating a broad, comprehensive framework of supervision — both for insurance companies and for more complex financial holding companies.”
The papers raise unanswered questions vital to the ongoing analysis of the current financial crisis:
* Were the financial models used in some of today's troubled financial institutions were simply incorrect?
* Did management and/or regulators of these firms understand what the models were and were not saying?
* Was there adequate communication between the companies and their regulators?
“As global pioneers in the application of risk-based solvency standards applied to insurers though the application of risk-based capital laws and standards, the NAIC continues to develop and expand the use of risk-management tools in monitoring the solvency of insurance companies,” Gross added.
The NAIC will work closely with the world’s insurance regulators to objectively answer these questions and to ensure insurance regulation develops keeps up with market conditions, while maintaining the robust consumer protections that American policyholders have every right to expect.
About the NAIC
Headquartered in Kansas City, Mo., the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise.