Insurance regulators got what they wanted with the Financial Stability Oversight Council's new method to determine whether nonbank companies are systemically important, according to Maine Bureau of Insurance Superintendent Eric Cioppa.
Cioppa is one of the insurance industry representatives who sits on the FSOC and is nearing the end of his tenure as president of the National Association of Insurance Commissioners. He has long championed the changes FSOC has now approved.
"We've said all along we don't think insurers are systemically risky," Cioppa told S&P Global Market Intelligence. "We've said that publicly since FSOC began their deliberations, and we continue to feel that way."
The finalized guidance from the FSOC directs the "primary regulator" to bear the brunt of the responsibility for supervising nonbank financial institutions whose activity the council deems systemically risky. The functional regulator will have "every opportunity" to deal with any problem that the FSOC identifies, Cioppa said.
"In my role as an insurance commissioner, that's all we could ask for," he said.
Cioppa said he believes insurance regulators are "ahead of the game" with their work on transmission risk and have also made progress with liquidity testing, capital stress testing and recovery resolution.
"We're recognizing that we need to deal with risk at a macro level as well, and that fits in nicely with what FSOC is doing with the activities-based approach," he said, adding that the new guidance helps to broaden regulators' perspectives. Such an approach is much better than looking at an institution and deeming it systemically risky because of its size alone, the Maine regulator said.
"That prevents an unlevel playing field for those insurers who were designated," Cioppa said.
The FSOC still plans to issue SIFI designations if the functional regulator cannot de-risk certain activities or if the risk to the U.S. financial system is found to be too great. Cioppa said he believes insurance regulators "absolutely" have the resources and expertise through interstate cooperation that they would need to deal with such an issue themselves.