A key state regulator is putting in motion a plan that could alter insurers' resolution and recovery process in the event of an insurer rehabilitation effort, insolvency or liquidation.
New Jersey Insurance Director Peter Hartt, who chairs the National Association of Insurance Commissioners' Financial Stability Task Force, told other NAIC committee heads to evaluate current insurer receivership insolvency processes. As part of that effort, he also wants them to start evaluating the benefits of other supervisory regulatory frameworks that focus on resolution and recovery methods for troubled financial firms.
In a memo dated Dec. 2, Hartt asked fellow New Jersey regulator Kristine Maurer and Maine Insurance Superintendent Eric Cioppa to evaluate states' current recovery and resolution laws and tools to see how they measure up with best practices in the area of financial stability. Maurer is chair of the NAIC's Receivership and Insolvency Task Force and Cioppa chairs the Financial Condition Committee.
Hartt signaled that he is not planning to have insurers file full resolution plans, an idea the Receivership and Insolvency Task Force rejected back in 2014 because of high production costs and uncertain benefits.
However, Hartt wrote that he is asking the task force to "consider taking further action."
The task force adopted the memo at the NAIC's fall meeting in Honolulu.
Hartt also asked regulators to glean useful information about how other countries use recovery and resolution planning for insurers that "may be systemically important."
Currently, Prudential Financial Inc. is the only U.S. insurer designated as a systemically important financial institution. As insurance director in New Jersey, where Prudential is domiciled, Hartt oversees the company on the state level. Prudential is regulated by the Federal Reserve Bank of Boston on a federal level because of its SIFI designation by the Financial Stability Oversight Council. Hartt is also the NAIC's designated member of the FSOC, in a nonvoting role.
SIFis are required to have a resolution plan or "living will" in place that details how they would wind down in the event of failure.
Hartt is seeking information that could be valuable for state insurance regulators to apply to large "cross-border" U.S. insurance groups, which includes companies operating across state as well as country borders. This approach could potentially involve U.S. insurers who are large domestically but are not global players, like New York Life and Nationwide.
Hartt indicated in his memo that he might prefer a plan to deal with an insurance group even before it becomes troubled, given "how quickly such events can occur." He also indicated he wants to be proactive in anticipating conflicts between federal and state laws that would slow down or confuse an orderly wind down process for troubled U.S. insurers.
The initiative is part of the NAIC's broader macroprudential project to consider potential enhancements in four areas: liquidity, recovery and resolution, capital stress testing, and the identification of exposure concentrations. Work has already begun to create a platform to gather more granular information on life insurers' product lines to see if there could be higher liquidity risks due to concentration in some product lines.
Hartt kicked off the macroprudential project earlier this year to explore how the U.S. insurance industry handles financial, economic and other common risk exposures.
The work is "imperative for credibility and continued of success of [the] state system," Hartt said Dec. 2, by phone. Hartt also made clear he welcomes industry input on the issue.
