Vaughan.Crisis - Removed from Syllabus

REMOVED FROM SYLLABUS: Lessons from State Insurance Regulation

This section has been removed from the syllabus starting 2023-Fall

Insurance companies fared relatively well during the financial crisis of 2007-08. This shows that the state-based system of insurance regulation with its various checks & balances is a good model. Financial systems, including insurance, are becoming increasingly globalized. Can we take elements of the U.S. state-based system and expand it to the global stage?

Question: identify 4 elements in building an effective global insurance regulatory system [Hint: TSAR]

Element 1: Trust

• regulators must trust each other

   U.S.: accomplished through NAIC accreditation

   global proposal: IMF Financial Sector Assessment Program and G20 peer review

Element 2: Share

• regulators in different countries must share information

(this is the greatest challenge because domestic regulators want to protect domestic industries)

Element 3: Action

• other countries must be able to take action against an insurer

(if dissatisfied with actions by other regulators)

Element 4: Resolution

• mechanism of resolution for bankruptcies

(must be fair to all countries involved)

This list strikes me as very important. Globalization is a core issue facing all of us. Do we need a global TSAR for insurance regulation?

REMOVED FROM SYLLABUS: Lessons for State Insurance Regulation

This section has been removed from the syllabus starting 2023-Fall

Any regulatory system must evolve with the times. Even though the checks & balances of the U.S. state-based insurance regulatory system has functioned well in the past, we should always be striving to increase efficiency and coordination.

Question: identify areas that regulators have targeted for improvements to the U.S. insurance regulatory system

• rating agencies: review reliance on rating agencies in the RBC system
• securities lending: new reporting requirements for securities lending
• unregulated affiliates: impact on insurers

Aside from these targeted improvements, there is also concern surrounding the system's ability to interact with entities outside the system, like Congress or regulators outside the U.S.

Question: identify the NAIC's 5 principles that any national regulatory structure should possess [Hint: STarCH] because you need structure in your white-collar shirt as a regulator!  ←shout-out to marquaty!

Standards: (2 principles)

• uniform where appropriate but local where necessary
• set & enforce at state level

Taxes & fees:

• states should still be able to collect taxes & fees

→ ar ← not part of the mnemonic - these are "infill" letters so that we could spell the word "starch"

Collaboration:

• encourage collaboration with international bodies

Holding companies:

• state regulators should have equal standing with other regulators regarding holding companies

These principles are designed to encourage uniformity and reciprocity. The first 4 make sense to me but the last one about holding companies seems a bit random. You probably have to get into this topic more deeply for it all to make sense.

I couldn't think of a good memory trick for the lists in this section, but luckily marquaty came up with one. (Personally, I don't like starch in my shirt collars, but I'm not a regulator!) Sometimes I make up a dumb story that ties everything together. And if I can't do that, I just flat-out memorize it with brute force repetition. (It's good to have several different strategies for learning that you can call up when needed.)