FINANCIAL SECTOR ASSESSMENT PROGRAM 

UNITED STATES OF AMERICA 

IAIS INSURANCE CORE PRINCIPLES

REPORT ON STANDARDS 

AND CODES (ROSC) 

JULY 2010 

INTERNATIONAL MONETARY FUND

MONETARY AND CAPITAL MARKETS DEPARTMENT
 
 Contents Page 

 

Glossary .....................................................................................................................................3

I. Introduction and Methodology ...............................................................................................4

II. Institutional and Market Structure—Overview .....................................................................5

III. Main Findings ......................................................................................................................7

IV. Authorities’ Response ........................................................................................................12

Tables 

1. Summary of Observance of the Insurance Core Principles ...................................................8

2. Recommended Action Plan to Improve Observance of the 

 Insurance Core Principles .......................................................................................................11
3 

GLOSSARY

AIG 

AML/CFT 

American International Group 

Anti-Money Laundering 

FATF Financial Action Task Force 

FAWG 

FSAP 

Financial Analysis Working Group 

Financial Sector Assessment Program 

IAIS International Association of Insurance Supervisors 

ICP Insurance Core Principle 

MoU 

NAIC 

SEC 

Memorandum of Understanding 

National Association of Insurance Commissioners 

Securities and Exchange Commission 

TARP Troubled Asset Relief Program 
4 

I. INTRODUCTION AND METHODOLOGY

1. Insurance regulation in the United States, which is mostly carried out by states, 

is generally thorough and effective, although there are areas where significant 

development is needed. Strong regulation contributed to the overall resilience of the 

insurance sector during the financial crisis. There is generally a high level of observance of 

the Insurance Core Principles. Aspects of regulatory work such as data collection and 

analysis in relation to individual insurance companies are world-leading. There are 

mechanisms to ensure individual states implement solvency requirements effectively. 

However, there is a need for development of the policy framework in relation to insurance 

and financial stability and international issues; and for extensive reform to the laws 

governing state insurance departments, including on appointment and dismissal of 

commissioners, to secure the independence of regulatory work. The approach to supervision 

of groups needs significant development. 

2. The assessment of the U.S.’s compliance with International Association of 

Insurance Supervisors (IAIS) Insurance Core Principles (ICP)1

 was carried out as part 

of the 2010 U.S.A Financial Sector Assessment Program (FSAP).

2 The assessment was 

carried out by Tom Karp, insurance expert and a former Executive General Manager, 

Australian Prudential Regulatory Authority, and Ian Tower, Monetary and Capital Markets 

Department, IMF. 

3. While insurance regulation is principally a responsibility of the states, the 

assessment addresses national compliance with the ICPs. Regulatory responsibility is 

shared by 50 states, the District of Columbia and the five U.S. territories. Federal authorities 

have limited regulatory powers over the insurance sector. The FSAP assessment addresses 

insurance regulation nationally and does not assess individual state authorities. 

4. The assessment is based on information available in November 2009, the time of 

the FSAP mission. It assesses compliance with the 2003 version of the IAIS Insurance Core 

Principles and Methodology. The National Association of Insurance Commissioners (NAIC) 

contributed a self-assessment and further material in response to requests before and during 

the mission. Documentation, including relevant laws, was supplied. The assessors met with 

staff from the NAIC and with selected insurance commissioners3

 and their staffs; with 

government, insurance companies and intermediaries; and with industry and actuarial bodies. 

The assessors are grateful for the full cooperation extended by all.

 

1

 The underlying Detailed Assessment Report was published in May 2010 and is available at 

http://www.imf.org/external/pubs/cat/longres.cfm?sk=23868.0. 

2

 For further discussion see the accompanying Financial System Stability Assessment (FSSA). 

3

 The term “insurance commissioner” is used to refer to the most senior official responsible for insurance 

regulation in each state, district, or territory. Actual titles vary. 
5 

5. The approach to this assessment reflects the large market size and state-based 

system of insurance regulation. Reliance has been placed on discussions with NAIC staff 

on regulatory practices across the states; and on the procedures used by the NAIC (i.e., the 

commissioners of insurance acting collectively and the staff of the association) in their 

support for state regulators; and with a selection of insurance commissioners and their staff in 

the states of Illinois, Iowa, New York, and West Virginia, focusing in particular on, 

respectively, life insurance supervision, the property and casualty sector (including brokers), 

coordination with foreign regulators, and challenges faced by smaller states. The assessors 

also met with the U.S. Department of the Treasury to discuss their overview of the system in 

the context of evolving plans for the reform of U.S. regulation. The assessors note that their 

conclusions are subject to unavoidable limitations on their ability to verify practices across 

the country that result from a state-based system with over 50 separate authorities. 

II. INSTITUTIONAL AND MARKET STRUCTURE—OVERVIEW

6. The U.S. insurance market is the largest in the world. There were 7,948 licensed 

insurance companies at the end of 2008. Total premium volume in 2008 of US$1.24 trillion 

accounted for 29 percent of the global market. On insurance density measures (premiums per 

capita), the United States ranked ninth at US$4,078 in 2008 and thirteenth on insurance 

penetration (premiums as a percentage of GDP) at 8.7 percent.4

 There are three main 

sectors—life, property and casualty, and health insurance. Key specialist insurance lines (i.e., 

those which must be written in separate companies) are: financial guaranty (bond 

insurance—the “monoline insurers”); mortgage insurance; and title insurance.

7. Most U.S. insurers write primary insurance on U.S. risks. The U.S. market is 

characterized by low market concentration in most sectors, indicating a high degree of 

competition; limited private sector capacity in certain “hard to insure” risks, such as natural 

catastrophes, which has led to the creation of programs provided by government; limited 

international insurance business and a relatively small reinsurance capacity—58 percent of 

all premium ceded to reinsurers by U.S. insurers is to markets in Europe and Bermuda; and 

relatively few groups offering insurance as well as other financial services: for example, only 

17 groups are headed by a bank holding company and regulated by the Federal Reserve.

8. Distribution of insurance products is mainly through agents and brokers. 

Intermediaries distributing insurance in the United States are generally referred to as 

“producers.” They may act as agents of one or more insurance companies (captive agents or 

independent agents) or as brokers—i.e., acting on behalf of the customer.

9. Overall, the insurance sector, and property and casualty business in particular, 

has been resilient through the financial crisis. Capital and surplus, the key measure of the 

buffer available in case reserves prove inadequate to ensure that policyholder claims can be 

paid, fell by 6.7 percent in life and 8.5 percent in property and casualty between end-2007 

and mid-2009. Companies whose capital adequacy, measured by the regulators’ risk-based 

 

4

 All data from Swiss Re: World Insurance in 2008. 
6 

capital (RBC) requirements, fell to regulatory intervention levels accounted for only 

3 percent of the total in 2008. The property and casualty sector suffered from investment falls, 

but losses from natural catastrophes in 2009 were not as high as in some recent years. 

10. However, there have also been significant stresses in the insurance sector in the 

last two years. Writers of financial guaranty business (the monoline insurers) lost their high 

ratings after serious losses related to impair structured finance products. The American 

International Group (AIG) was supported by the federal authorities after major losses at its 

capital markets affiliate. Two other insurance groups with federally regulated banking or 

thrift subsidiaries were granted federal government capital support under the Troubled Asset 

Relief Program (TARP) (others had applied for funds). Life insurance was particularly 

affected by the crisis, many strains being related to growth in non-traditional savings 

products such as variable annuities, many of which have generous guarantees. 

11. While pressures have eased, there remain challenges. While the recovery in many 

markets since March 2009 has brought relief, life companies in particular remain exposed to 

possible further problems if economic recovery continues to be modest. However, as life 

companies have shifted to savings products, their insurance risks (mortality and longevity) 

have become less significant. Health insurers are subject to significant uncertainty arising 

from the federal government reforms to health insurance. Property and casualty risks are 

more dispersed. While the United States is exposed to major natural catastrophes, their 

impact is regional; national companies are diversified and the largest risks are carried by 

foreign reinsurers.

12. Insurance is a predominantly state-regulated activity in the United States. The 

1945 McCarran-Ferguson Act reinstated the regulatory authority of the states “on matters of 

the business of insurance” and exempted the “business of insurance” as regulated by the 

states from federal anti-trust laws. The federal government has enacted various measures 

affecting insurance, including the Gramm-Leach-Bliley Act of 1999 and the 2002 U.S.A. 

PATRIOT Act, which gave examination powers in relation to anti-money laundering and 

specified insurance business to federal authorities.

13. States carry out insurance regulatory functions within the state administration.

The insurance departments or similar units within state administrations carry out licensing 

and oversight work for insurance companies and intermediaries under powers set out in state 

legislation and in accordance with state budgets. A commissioner heads the department and 

exercises all formal powers. Some commissioners are elected, but most are appointed by the 

state governor. While arrangements vary among states, funding is usually raised from the 

insurance markets via fees and levies. Insurance departments also collect premium taxes for 

the states, a significant part of state governments’ total revenues. 

14. State insurance departments carry out both financial and market conduct 

regulation. States set reserving and capital requirements. They carry out financial analysis 

and onsite examinations. Most states have some review or approval authority over policy 

forms and, in the case of property and casualty insurers, they also often regulate premium 

rates. Departments also respond directly to consumers’ complaints and requests for 

information. They license and oversee insurance intermediaries. 
7 

15. The NAIC plays an important coordinating role for state regulators. The NAIC 

is a not-for-profit organization established by the state insurance commissioners to centralize 

some functions to achieve economies and greater uniformity. The NAIC itself employs some 

430 staff, which compares with nearly 12,000 employed by the states. Key functions of the 

NAIC include the development of model laws and regulations, which now total over 200; the 

Financial Regulation Standards and Accreditation Program (referred to in this report as “the 

accreditation program”), aimed at ensuring that states meet certain minimum standards in 

respect to financial regulation; and the centralized process of financial analysis operated 

through the NAIC’s Financial Analysis Working Group (FAWG). 

16. Insurance policyholders are protected against the insolvency of insurance 

companies by guaranty associations in each state. All U.S. insurance companies are 

required to be members of associations covering life and health insurance and, through 

separate organizations, property and casualty. Payments are triggered by the insolvency of an 

insurer. Laws differ on the extent of coverage and maximum payable per policyholder. 

III. MAIN FINDINGS

17. Insurance regulation in the United States is generally thorough and effective, 

although there are areas where development is needed: 

 The preconditions for effective insurance supervision are generally met; but there is a 

need for development of the framework in relation to insurance and financial stability 

and international issues. There is a need for reform of the laws governing state 

insurance departments, including on appointment and dismissal of commissioners, the 

budgetary framework and remuneration policies, in order to secure the independence 

of regulatory work. While regulation is carried out transparently, there is a need for 

measures to foster improved stakeholder understanding of the regulatory approach. 

 There is a comprehensive set of requirements and processes for insurance company 

licensing, but some gaps in the requirements relating to suitability of persons. 

Requirements in relation to governance, internal controls, and risk management are 

limited and should be extended. 

 NAIC data collection and analysis capabilities are world-leading, although the 

absence of complete group-wide consolidated data for groups hinders the ability of 

supervisors to analyze and monitor important market-wide events. 

 Examinations (i.e., onsite supervision) are generally thorough and well documented. 

The approach to enforcement is comprehensive and applied in practice as necessary; 

there is no explicit authority for supervisors to fine directors or senior managers of 

insurers, or to bar them from acting in responsible capacities in the future.

 The approach to supervision of groups needs significant development. Supervisors do 

not currently make a comprehensive and consistent assessment of the financial 

condition of the whole group of which a licensed insurance company is a member. 
8 

 The liability reserving methods and bases generally lead to conservative estimates 

and, in combination with capital requirements, provide a sizable buffer against 

adverse experience. However, for general transparency and for international 

comparison, consideration should be given to specifying a target safety level for 

reserving and an associated target safety level for capital.

 While producer (i.e., intermediary) regulation is less uniform than for insurance 

companies, states have the core requirements. There is a need to extend broker trust 

fund arrangements across states, to develop a uniform approach to the regulation of 

major brokers and to finalize a consistent approach to commission disclosure. 

 Consumer protection work is moving to a more proactive approach. This transition 

has further to go. However, core consumer protection requirements are apparently in 

place in most states. 

 Requirements on fraud are in place across states, and the capacity of departments to 

address fraud-related issues is increasing as market conduct exams are undertaken 

and the availability of fraud data increases. The authorities have only recently brought 

relevant insurance business within the scope of federal anti-money laundering 

regulatory requirements. There were significant gaps in the framework when the most 

recent Financial Action Task Force (FATF) work was undertaken in 2006. 

Table 1. Summary of Observance of the Insurance Core Principles 

INSURANCE CORE 

PRINCIPLE ASSESSMENT 

ICP 1– Conditions for 

effective insurance 

supervision 

The preconditions for effective insurance supervision are generally met—reflecting 

the highly developed legal and institutional framework within which it operates and 

the scale and liquidity of U.S. financial markets. But there is a need for some 

development of the policy framework in relation to insurance and financial stability 

and to international issues. 

ICP 2 – Supervisory 

objectives 

The objectives of departments are generally not established explicitly by law. There 

are differences in the ways individual departments view their objectives. There is also 

some scope for conflict of objectives. There is a need to balance objectives of 

achieving financial safety and soundness and consumer protection with the desirability 

of fostering market efficiency and competitiveness. 

ICP 3 – Supervisory 

authority 

The vesting of regulatory powers in the commissioner in principle ensures that 

departments are operationally independent. However, the ability of the governor in 

most states to dismiss commissioners at any time, and without a public statement of 

reasons, exposes departments to potential political influences. Elected commissioners 

may be subject to the pressures of the electoral cycle. In addition, departments are 

dependent on state legislatures in respect of principal legislation and for budgetary 

resources. 

ICP 4 – Supervisory 

process 

Insurance regulation is carried out openly and transparently, with clear accountability 

to the state administration and legislature and rights of appeal (and judicial review). 

But there is a need for measures to foster improved stakeholder understanding of the 

state-based regulatory approach. 
9 

ICP 5 – Supervisory 

cooperation and 

information sharing 

Although the main focus of information exchange with other regulators has 

traditionally been on cooperation with other insurance departments, regulators are able 

to share information with relevant federal authorities and with regulators abroad. 

There is a need to continue developing the network of MoUs. 

ICP 6 – Licensing While approaches in individual departments vary, the core requirements adopted by 

all states represent a comprehensive set of requirements and processes for insurance 

company licensing. 

ICP 7 – Suitability of 

persons 

Departments take a view on all significant owners, Board members, senior 

management, auditors, and actuaries and take appropriate action where concerns arise. 

However, the approach is based on assessment of the fitness and propriety of key 

functionaries at the point of application for a license, and on an ongoing basis through 

the examination process, rather than the approval of individuals.

ICP 8 – Changes in 

control and portfolio 

transfers 

There are extensive requirements and related reporting governing changes in control 

and portfolio transfers. 

ICP 9 – Corporate 

governance 

Corporate governance standards for publicly-traded U.S. companies, including 

insurers, are set and enforced by the Securities and Exchange Commission (SEC), 

while requirements for all insurance companies will be introduced from January 2010. 

Departments have been increasing their focus on governance issues.

ICP 10 – Internal 

controls 

Other than controls relating to financial reporting, departments have few requirements 

relating to internal controls on insurers. For publicly-traded companies, the SarbanesOxley provisions provide a general framework of detailed control requirements and 

testing of controls. From January 1, 2010, much of this framework will be extended to 

most other insurers but these requirements will take time to implement in full. 

ICP 11 – Market 

analysis 

The absence of complete group-wide consolidated data for insurance groups and 

broader financial conglomerates hinders the ability of supervisors to analyze and 

monitor market-wide events of importance for the stability of insurance markets. 

Otherwise, the NAIC data sources and analysis capabilities are world-leading. 

ICP 12 – Reporting to 

supervisors and offsite monitoring 

The NAIC data collection and analysis capabilities in relation to authorized insurance 

companies are world-leading. The affiliate transaction requirements provide a strong 

means of identifying and controlling intra-group dealings and exposures. However, 

there are no formal reporting requirements for complete group-wide consolidated data 

for insurance groups and broader financial conglomerate groups which would allow 

insurance regulatory style financial condition assessment. 

ICP 13 – On-site 

inspection 

Financial examinations are generally thorough and well documented. Examinations 

also appear to identify the important issues. The rollout of a risk-focused examination 

approach will require examiners to make more qualitative judgments about insurer 

risks and controls. Effective implementation will not be easy because of the changes it 

demands of examiners. 

ICP 14 – Preventive 

and corrective 

measures 

The structure of prompt corrective action triggers and required actions is thorough and 

is rigorously applied. While it could not, and should not, prevent insurers ever failing, 

it does lead to reduced insurer shortfall in any failure. 

ICP 15 – Enforcement 

or sanctions 

There is no clear authority for the supervisory authority to fine directors or senior 

managers of insurers or to bar them from acting in responsible capacities in future. 

ICP 16 – Winding-up 

or exit from the 

market 

There is a strong focus by the supervisors on ensuring individual policyholder 

obligations are met. The arrangements for insurer wind-up and exit from the market 

are clear, have worked effectively and in conjunction with guaranty fund 

arrangements provide strong protection against policyholder loss if an insurer fails. 

ICP 17 – Group-wide 

supervision 

The U.S. approach is focused on securing the financial soundness of individual 

insurance companies. U.S. supervisors do not currently make an assessment of the 

financial condition of the whole group of which a licensed insurance company is a 

member. Risk-focused examinations are not yet generally focusing on group issues; 

and supervisory colleges are not meeting for all U.S.-based international groups. 

ICP 18 – Risk While the desired outcomes for this ICP are essentially achieved in practice owing to 
10 

assessment and 

management 

comprehensive examination of insurers, it is increasingly important that the risk 

management function of insurers is of high quality and given significant focus and 

influence within insurers. There is no requirement that an insurer have in place 

comprehensive risk management policies and systems. 

ICP 19 – Insurance 

activity 

The relevant laws or regulations do not explicitly provide that an insurer must have in 

place strategic underwriting and pricing policies approved and reviewed regularly by 

the Board. Boards are not required to set the strategic limits on these core insurance 

functions within which management should operate.

ICP 20 – Liabilities The liability reserving methods and bases generally lead to conservative estimates, 

which is in line with the conservative, book value nature of statutory insurance 

accounting in the United States. However, there is currently no particular or specified 

safety level which is targeted for reserving – or capital. 

ICP 21 – Investments The regulatory requirements for investments are robust and likely to have contributed 

to the limited number of major investment problems for insurers in the financial crisis. 

As insurers move to a more principles-based approach, it will be important to ensure 

that all aspects of investment risk, especially asset/liability mismatching risks, are well 

covered in the reserving and capital requirements. 

ICP 22 – Derivatives 

and similar 

commitments 

The requirements relating to derivatives use in insurers are robust and sensible in that 

they allow derivatives to be used for purposes which would enhance an insurer’s 

investment management and returns without exposing it to undue risk. 

ICP 23 – Capital 

adequacy and 

solvency 

There are no requirements to address inflation of capital through multiple gearing. 

Insurance company reserves are determined conservatively and the regulatory capital 

is then required in addition. The combination of reserving and capital provides a 

sizable buffer against adverse experience. In the absence of a specified safety level 

which is targeted for reserving plus capital, it is difficult to determine the level of 

adversity that the combination of reserves and capital can cover, but it appears to be 

commensurate with or higher than in many other jurisdictions. 

ICP 24 – 

Intermediaries 

While producer (i.e., intermediary) regulation is much less uniform than it is for 

insurance companies, most states have at least the core requirements. The general 

legal framework provides safeguards for client money where intermediaries act as 

agents. There is less uniformity on the safeguards applying to money held by brokers. 

ICP 25 – Consumer 

protection 

Departments have been moving to a more proactive approach to market conduct of 

insurers. This transition has further to go, however, particularly in respect of the 

ability of the departments to identify and respond quickly to wider market issues as 

well as problems at individual companies. As with producer licensing, there is a 

marked lack of uniformity across states in the market conduct area. However, core 

consumer protection requirements are apparently in place in most states. 

ICP 26 – Information, 

disclosure and 

transparency toward 

markets 

While there are no regulatory requirements in relation to disclosure, full financial 

information, including the actuarial opinion and auditor’s statement, are readily 

available to stakeholders. This reflects the relative ease of access and concentration of 

data that has resulted from financial statements being submitted directly to the NAIC. 

However, there is scope to improve the availability of information to policyholders 

without access to databases, ratings, etc.

ICP 27 – Fraud While approaches vary by state, core requirements (such as making insurance fraud a 

crime) are in place across states. The capacity of departments to address fraud-related 

issues is increasing as market conduct exams are undertaken. 

ICP 28 – Anti-moneylaundering, combating 

the financing of 

terrorism 

The authorities have only recently brought relevant insurance business within the 

scope of (federal) anti-money laundering regulatory requirements. Implementing the 

approach has taken time. There were significant gaps in the framework when the most 

recent FATF work was undertaken in 2006. The effectiveness of cooperation between 

state and federal regulators is limited pending the consideration of legal issues arising 

from their collaboration and agreement of new procedures and information sharing 

arrangements. 
11 

Table 2. Recommended Action to Improve Observance of the Insurance 

Core Principles 

PRINCIPLE RECOMMENDED ACTION

ICP 1 – Conditions 

for effective insurance 

supervision 

The authorities should increase information-sharing and coordination between state 

regulators and federal authorities, agree policies and procedures for the regulation of 

systemically important institutions, markets and instruments in the insurance sector and 

make new arrangements to increase the authority of federal authorities in relation to the 

implementation of international agreements. 

ICP 2 – Supervisory 

objectives 

Insurance departments, the NAIC and state legislatures should develop a clear, joint 

statement of the objectives of insurance regulation, taking into account good practice 

internationally, and align the objectives of individual state departments with these 

objectives. 

ICP 3 – Supervisory 

authority 

The NAIC and state legislatures should make reforms including providing for fixed 

terms to be standard for commissioner appointments, with dismissal mid-term to be 

possible only for prescribed causes and with publication of reasons; and making 

departments fully self-funding. 

ICP 4 – Supervisory 

process 

To further improve the transparency of its work, the NAIC should make publicly 

available some information that is currently available only on payment of a fee or by 

subscription; and publish summary information on their assessment of states’ 

compliance with accreditation standards. 

ICP 5 – Supervisory 

cooperation and 

information sharing 

The states and NAIC should continue to develop the network of MoUs. All state 

insurance departments should ensure that laws are updated to enable them to protect 

information received from foreign regulators. This will ensure that overseas regulators 

are not deterred from sharing information freely. 

ICP 7 – Suitability of 

persons 

Specific requirements in relation to individuals’ fitness and propriety should be 

adopted. Gaps in the requirements of departments should be filled. 

ICP 9 – Corporate 

Governance 

As examiners gain experience, the NAIC and/or departments should consider issuing 

more guidance on good and bad practices in corporate governance for insurers. 

ICP 10 – Internal 

controls 

As examiners gain experience, the NAIC and/or departments should consider the scope 

for issuing guidance on good and bad practices in internal control. They should also 

make it a formal requirement for insurers to have an internal audit function. 

ICP 11 – Market 

analysis 

Regulators should collect more complete group-wide consolidated data for insurance 

groups and broader financial conglomerates. They should develop further their analysis 

of developments outside the U.S. markets. 

ICP 12 – Reporting to 

supervisors and off-site 

monitoring 

Collection of group-wide consolidated data for insurance groups and broader financial 

conglomerate groups should be introduced. 

ICP 15 – Enforcement 

or sanctions 

The insurance laws should be changed to provide the supervisory authority with 

powers to fine individual directors and senior managers of insurers, and to bar them 

from acting in responsible capacities in the future. 

ICP 17 – Group-wide 

supervision 

U.S. supervisors should include fuller assessment of the financial condition of the 

whole group of which a licensed insurance company is a member, extend the riskfocused approach to examinations of solo insurance companies to groups and ensure 

that colleges of supervisors for the U.S. groups with major international operations are 

established and functioning effectively—and led by U.S. regulators with appropriate 

insurance expertise. 
12 

PRINCIPLE RECOMMENDED ACTION

ICP 18 – Risk 

assessment and 

management 

The relevant laws, regulations or standards should be changed to include a requirement 

that an insurer must have in place comprehensive risk management policies and 

systems capable of promptly identifying, measuring, assessing, reporting and 

controlling their risks. 

ICP 19 – Insurance 

activity 

The relevant laws or regulation should explicitly provide that an insurer must have in 

place strategic underwriting and pricing policies approved and reviewed regularly by 

the Board. 

ICP 23 – Capital 

adequacy and solvency 

For general transparency and for comparison, it is recommended that consideration be 

given to specifying a target safety level for reserving and an associated target safety 

level for capital. Requirements to address inflation of capital through multiple gearing 

should be included in the law, regulation or rules. 

ICP 24 – 

Intermediaries 

Some strengthening of the approach to producer regulation is recommended to extend 

broker trust fund arrangements across states (where not already in place), to develop a 

uniform approach to the regulation of major brokers and to complete the current work 

on a consistent approach to the regulation of commission disclosure. 

ICP 28 - Anti-moneylaundering, combating 

the financing of 

terrorism 

It is recommended that a timetable is set for the agreement and implementation of new 

arrangements between state insurance departments and federal authorities that will 

deliver greater resourcing of supervisory activities as well as necessary information 

exchange. 

IV. AUTHORITIES’ RESPONSE

18. The U.S. authorities welcomed the opportunity to take part in the U.S. FSAP and the 

IMF’s assessment of a high level of observance of the IAIS Insurance Core Principles (ICPs). 

It has provided insurance regulators in the United States with a timely opportunity to 

undertake a comprehensive self-assessment of the U.S. insurance regulatory system against 

international standards, and has contributed to ongoing internal reviews and assessments of 

regulatory practices. In addition, the FSAP has served as a useful platform for providing an 

overview of the U.S. insurance regulatory system and its multi-jurisdictional structure. The 

authorities appreciate the recognition by the IMF of the strengths in the regulatory system 

including areas that the IMF itself has coined as “world leading.” 

19. As recognized by the Report, it is important to consider the U.S. assessment in 

context. The assessment of the U.S. supervisory framework was undertaken in the wake of a 

severe financial crisis, and movements toward significant changes in supervisory practices 

have gained momentum as a result of the financial crisis and circumstances emanating from 

the crisis, including with respect to group-wide supervision. The IMF’s assessment of U.S. 

compliance with ICP 17, the group-wide supervision standard, goes beyond the scope of the 

current ICP assessment in that it assesses compliance with a group supervision structure, 

which is still under discussion and development in most jurisdictions and within the IAIS, 

where revision of the insurance ICPs that may reflect these changes may not be finalized 

until 2011. 

20. Insurance regulators in the United States are working with regulators around the 

world on initiatives to enhance group supervision, and have in place inter-regulatory 
13 

cooperation processes, such as the use of lead state supervisory structures and the Financial 

Analysis Working Group of the National Association of Insurance Commissioners (NAIC). 

In addition, the Report acknowledges the comprehensive review underway with the Solvency 

Modernization Initiative which takes into account international and cross-sectoral practices in 

the analysis of possible additions or modifications to current insurance regulatory practices. 

21. U.S. authorities remain strongly committed to prudential regulatory independence and 

accountability, including continually striving to improve ways to effectively balance these 

two objectives. Transparent rulemaking with opportunity for stakeholder involvement, for 

example, has proven a particularly effective way to provide accountability and improve the 

regulatory environment, while respecting regulatory independence. As reflected in the 

assessment of ICP 3, the Supervisory Authority standard, the assessment appears to rely on 

structural characteristics while failing to fully recognize the effective operational 

independence of state insurance regulators. In practice, the U.S. multijurisdictional approach 

to insurance regulation holds regulators accountable to each other in a peer review process 

that includes on-going nation-wide monitoring through the NAIC, regular dialogue among all 

regulators, and the ability of states to question the actions of fellow state insurance regulators. 

22. Within the assessment, there appear to be philosophical preferences for a principlesbased, rather than rules-based, approach to regulation, yet assessment recommendations 

inconsistently apply those preferences by variously seeking more, as well as fewer, rules. 

Further, there appears to be no empirical evidence to suggest that one approach is superior to 

the other or that the choice of approach affects the U.S. regulators’ ability to meet the 

standards set out in the various ICPs. U.S. authorities fully support a regulatory environment 

based on principles and made operational by rules that can provide consistent standards 

throughout the marketplace, yet remain flexible enough to adapt to new developments. 

23. The IMF’s assessment of ICP 28, the AML and CFT standard, identified some areas 

where U.S. AML requirements may be improved upon, but fails to fully recognize the robust 

protection provided U.S. citizens against money laundering activities. Of note, the United 

States has a bifurcated regulatory scheme regarding AML regulation. As noted, the federal 

government has primary jurisdiction of AML statutes while the regulation of insurance and 

expertise in financial examination of insurance is the responsibility of the states. Although 

both state and federal authorities have agreed to work together to review the current 

examination process, it is important to note and remember that an in-depth legal analysis has 

yet to be undertaken on this subject. 

24. U.S. Authorities appreciate the assessment and will thoroughly review the Report’s 

recommendations and take them into account when initiating and implementing any 

insurance regulatory reforms. We look forward to engaging in continuing ongoing dialogues 

with the IMF on how to best collectively improve international financial stability and 

supervision of the global financial services sector.