Updates on FSOC, IMF, IAIS & FSB Activity

The Financial Stability Oversight Council (FSOC) issued its Annual Report on December 14, 2023 (click here to download the report). Of note in this year’s report, there is a new focus on the risk posed by artificial intelligence (AI), machine learning, and new generative technologies; the report instructs other federal agencies to monitor the issue. In addition, FSOC is concerned with private credit, particularly with insurance company investment in this sector. FSOC also expressed systemic concern in concert with the insurance sector’s credit risk exposure and junk-bond exposure, offshore reinsurance, and private equity ownership. The report reiterates FSOC’s continuing focus on cyber and climate risk, with the closed session preceding the meeting considering a framework being developed by the Office of the Comptroller of the Currency (OCC) to measure and monitor financial risks and bank exposures. Agencies are also encouraged to pursue comparable, “decision-useful” climate disclosures.

Reflecting FSOC’s systemic risk concerns about insurance company ownership by private equity firms, the International Monetary Fund (IMF) released a Global Financial Stability Note encouraging supervisors to analyze the potential contagion risks of private equity–led insurers. The report notes that changing macroeconomic conditions and low rates have led life insurance companies to retreat from traditional products, with private equity acquisition leading to strategic pivots to “capital-light” products.

Echoing FSOC’s support of recent Federal Insurance Office (FIO) and NAIC initiatives, the IMF praised work by U.S. state regulators and encouraged supervisors elsewhere to aspire to U.S. disclosure standards. In addition, the report raises global concerns about data quality and availability, regulatory arbitrage, valuation uncertainty, and liquidity risk, calling for widespread adoption of globally consistent consolidated capital standards, “intrusive” supervisory review of insurers’ valuation processes, and enhanced liquidity monitoring and stress testing.

In addition, last week, the International Association of Insurance Supervisors (IAIS) published its final Issues Paper on roles and functioning of policyholder protection schemes (PPSs) (click here to download) and the corresponding Resolution of comments (click here to download). A public webinar is scheduled for January 16, 2024, to discuss the final paper. The Resolution Working Group is now working on revisions to IAIS recovery and resolution standards.

The Financial Stability Board (FSB) announced late last week that it will not publish the list of insurers subject to the Key Attributes resolution planning standards until 2024. The FSB was making its list (and checking it twice), but one or more jurisdictions failed to report critical information in time for a year-end release.

New Contact Information for Mark Femal

Mark Femal, who serves as a consultant for many NOLHGA insolvency task forces, has retired from Strohm Ballweg, but he will continue his work on NOLHGA projects as an independent contractor. His new contact information is below:

E-mail: [email protected]
Phone: 608.206.5916