Several congressional Republicans have written to the National Association of Insurance Commissioners (NAIC) to urge the withdrawal of a proposal that would expand the organization’s discretion over filing-exempt securities.
Representatives Warren Davidson, Andy Barr, Bill Posey, Blaine Luetkemeyer, Scottt Fitzgerald, Andrew Garbarino, Mike Flood, and Mike Lawler – all Republicans – said the proposal would undermine competition and risk “upending” the state-based insurance regulatory framework.
The proposal would allow NAIC’s Securities Valuation Office (SVO) to review all filing-exempt securities and contest ratings from nationally recognized statistical ratings organizations (NRSRO) if the SVO believes those ratings aren’t reasonable assessments of risk.
“Such discretion, which appears to lack any formal methodology, if enacted, would deviate significantly from the NAIC’s proper role within insurance regulation,” the congressmen wrote. “We fear that such discretion would make NAIC-regulated entities susceptible to staff-driven agendas. Additionally, these same proposals could undermine a competitive market amongst NRSROs and exacerbate the SVO’s recent gravitation towards becoming an unregulated NRSRO competitor.”
The representatives said that the proposals “would expand the SVO’s footprint well beyond that of a regulator. Should these proposals get enacted, the SVO would become an unregulated, de facto NRSRO and undermine market competition through their unfair competitive advantage.”
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The representatives said that this unfair advantage would arise “from a conflict of interest within the SVO where the SVO would both set fees and designate securities.”
The congressmen said that the SVO could use the NAIC’s “unique position” to point businesses to its commercial services, “while simultaneously incentivizing US insurers to stop using private sector ratings firms” – a situation they said “would be an unwelcome paradigm shift.”
The congressman stressed the importance of the current state-based regulatory framework.
“We cannot risk upending this framework by opening the door to SVO staff-driven actions that could ultimately hurt competition, imperil the capital adequacy of NAIC-regulated entities, and make it harder for insurers’ ability to meet their obligations,” the congressmen wrote. “We ask that the NAIC withdraw the recent proposals and work to ensure the SVO does not undermine the integrity of our state-based regulatory structure or interfere with competition amongst NRSROs.”
In other regulation-related news, the National Council of Insurance Legislators (NCOIL) recently clashed with the Federal Trade Commission over a proposed rule NCOIL said would infringe upon state regulation of insurance.
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