7/11/13 - NAIC CEO Reacts to AIG Designation as Systemic
The NAIC appreciates the important work of the Financial Stability Oversight Council (FSOC), and supports the goal of mitigating systemic threats to the US financial system. The recent designation of AIG by FSOC will subject the firm to enhanced supervision by its existing consolidated regulator, the Federal Reserve, and we stand ready to assist the Federal Reserve as needed. While this designation is not unexpected given AIG’s role in the financial crisis, the reasoning offered by FSOC to justify the designation suggests a misunderstanding of the insurance business model and regulation of insurance.
Elements of FSOC’s rationale focus on the scope of AIG’s insurance activities and theorize about the potential for a “run-like” scenario for certain insurance products or a broader loss of public confidence in the insurance sector. However, during the recent financial crisis – the worst since the Great Depression – state regulators closely monitored surrenders and withdrawals at AIG and its competitors, and the insurance sector did not suffer a run or the same loss of public confidence experienced by the banking sector.
FSOC’s rationale also noted the size of AIG’s market presence in certain property/casualty and surplus lines, and fears about the ability of AIG’s policyholders to replace coverage in the event AIG exits the market. While the exit of a market leader could be disruptive, within the insurance sector there is a proven history of a robust, competitive market absorbing the business of failing insurers and attracting new capital.We continue to believe that traditional insurance activities do not pose a systemic threat to the financial system, and would encourage FSOC to focus on highly leveraged, thinly capitalized, or unregulated activities of non-banks as it exercises its authority.