Research Center Events
NYU Stern Salomon Center Holds Event on Insurance Industry Regulation
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On Monday, September 21, the NYU Stern Salomon Center for the Study of Financial Institutions held a day-long conference on insurance industry regulation to discuss the industry’s current regulatory environment and, with learnings from the financial crisis, options for regulatory improvement including enacting a federal optional charter. The audience included industry leaders, members of the Stern faculty and journalists.
After welcoming the audience, John Biggs, NYU Stern Executive-in-Residence and former CEO, TIAA-CREF, explained that the insurance industry accounts for approximately 10 percent of GDP and is more systemic than people believe. He noted the conference as another chapter of the NYU Stern faculty response to the financial crisis, captured in the book, “Restoring Financial Stability: How to Repair a Failed System,” co-authored by Stern Professors Viral Acharya and Matthew Richardson.
Read the NYU Stern White Paper on the Financial Regulation of the Insurance Industry>>
Authored by NYU Stern Professors Viral Acharya, John Biggs, Matthew Richardson and Stephen Ryan
Watch the morning session>>
Listen to the morning session>>
Watch the afternoon session>>
Listen to the afternoon session>>
Viral Acharya, NYU Stern Professor of Finance, explained the need to quantify systemic risk and regulate what is worrisome versus what is measurable. Dinallo argued that pure insurance companies are not systemically risky, citing AIG’s non-insurance arm as the culprit of the firm’s troubles. The two panelists also discussed Credit Default Swaps and the role of credit rating agencies. Insurance Company Accounting—Post Crisis
Mark Parkin, Managing Director, Deloitte & Touche, explained the difference between GAAP accounting principles and Statutory Accounting Principles (SAP), which are accounting rules specific to the insurance industry. Parkin explained that, for the most part, each state has a right to set its own standards and, from a regulatory point of view, SAP worked well. When asked if federal regulators should adopt GAAP, Parkin responded that if regulators want to use GAAP, they must recalibrate to the GAAP model, adding that not many federal regulators understand insurance because insurance companies are regulated by each state, not by the federal government.
Frank Keating, CEO of the American Council of Life Insurers and former Governor of Oklahoma, addressed the issue of protecting American retirement security, noting that many Americans don't have savings, pensions, or insurance to cover retirement or long-term nursing home care. By contrast in Japan, there are more products and they are offered at a lower cost. Noting that insurance charters are improving in 36 states, he advocated for an optional federal charter for life insurance and an Office of National Insurance at the Treasury Department to provide a focus on solutions for the insurance industry at the federal level as well as at the state level.
David Cummins, Temple University, provided an overview on the idea of being too big to fail, explaining that banks have $14T in assets and the total insurance industry has about $6T in assets, and insurance don’t have the ability to trigger failures in the payment system or threats to the credit markets. William R. Berkley, CEO of W.R. Berkley Corporation said that what brought this crisis about was an unforeseen correlation of every risk imaginable. In noting that annuities are highly leveraged enterprises, he said that insurers had an incentive to push investment risk to obtain the largest spread they could, precipitating what he called “the perfect storm” in the annuity business.
Howard Mills, Deloitte & Touche and former Superintendent of the New York State Insurance Department, argued that the OFC should be banned, noting that if it can’t pass now, it should be taken off the table. When asked how to obtain regulatory consistency across all states, Eric Dinallo said it is not possible, with Mills adding that it is partly due to the lack of uniformity of state resources. Mills also added that when it comes to the insurance industry, time bombs still exist, including the accreditation of agents selling products to seniors.
After welcoming the audience, John Biggs, NYU Stern Executive-in-Residence and former CEO, TIAA-CREF, explained that the insurance industry accounts for approximately 10 percent of GDP and is more systemic than people believe. He noted the conference as another chapter of the NYU Stern faculty response to the financial crisis, captured in the book, “Restoring Financial Stability: How to Repair a Failed System,” co-authored by Stern Professors Viral Acharya and Matthew Richardson.
Read the NYU Stern White Paper on the Financial Regulation of the Insurance Industry>>
Authored by NYU Stern Professors Viral Acharya, John Biggs, Matthew Richardson and Stephen Ryan
Watch the morning session>>
Listen to the morning session>>
Watch the afternoon session>>
Listen to the afternoon session>>
Opening Keynote and Discussion of the Federal Regulator Option
Moderated by John Biggs
After his opening keynote address, which included the support of an Optional Federal Charter (OFC), Roger Ferguson, CEO, TIAA-CREF and former Vice Chairman of the Board of Governors of the Federal Reserve System, and Eric Dinallo, Henry Kaufman Visiting Professor of Finance at NYU Stern School of Business and former Superintendent of New York State Insurance Department, shared their opinions on an OFC. Ferguson believes that an OFC would “increase efficiency of the marketplace, provide for effective and ample consumer protection and for prudential regulation, and increase the global competiveness of the US Insurance industry.” Dinallo, while potentially supportive of an OFC for some businesses such as monolines and reinsurance, believes the “optional” part of the OFC would be a disaster, citing AIG as an example of a firm that selected its own regulator and suffered because of it, “It is a disaster to inject optionality into a federal regime… optionality, the ability to choose your own regulator, has only led to atomic waste,” he said.Lessons Learned from the Crisis
Moderated by Professor Matthew Richardson
Viral Acharya, NYU Stern Professor of Finance, explained the need to quantify systemic risk and regulate what is worrisome versus what is measurable. Dinallo argued that pure insurance companies are not systemically risky, citing AIG’s non-insurance arm as the culprit of the firm’s troubles. The two panelists also discussed Credit Default Swaps and the role of credit rating agencies. Insurance Company Accounting—Post Crisis
Insurance Company Accounting—Post Crisis
Moderated by Professor Stephen Ryan
Mark Parkin, Managing Director, Deloitte & Touche, explained the difference between GAAP accounting principles and Statutory Accounting Principles (SAP), which are accounting rules specific to the insurance industry. Parkin explained that, for the most part, each state has a right to set its own standards and, from a regulatory point of view, SAP worked well. When asked if federal regulators should adopt GAAP, Parkin responded that if regulators want to use GAAP, they must recalibrate to the GAAP model, adding that not many federal regulators understand insurance because insurance companies are regulated by each state, not by the federal government.
Luncheon Keynote
Frank Keating, CEO of the American Council of Life Insurers and former Governor of Oklahoma, addressed the issue of protecting American retirement security, noting that many Americans don't have savings, pensions, or insurance to cover retirement or long-term nursing home care. By contrast in Japan, there are more products and they are offered at a lower cost. Noting that insurance charters are improving in 36 states, he advocated for an optional federal charter for life insurance and an Office of National Insurance at the Treasury Department to provide a focus on solutions for the insurance industry at the federal level as well as at the state level.
Are Insurance Companies Too Big To Fail?
Moderated by Professor Matthew Richardson
David Cummins, Temple University, provided an overview on the idea of being too big to fail, explaining that banks have $14T in assets and the total insurance industry has about $6T in assets, and insurance don’t have the ability to trigger failures in the payment system or threats to the credit markets. William R. Berkley, CEO of W.R. Berkley Corporation said that what brought this crisis about was an unforeseen correlation of every risk imaginable. In noting that annuities are highly leveraged enterprises, he said that insurers had an incentive to push investment risk to obtain the largest spread they could, precipitating what he called “the perfect storm” in the annuity business.
Treasury Proposals before Congress
Moderated by John Biggs
Howard Mills, Deloitte & Touche and former Superintendent of the New York State Insurance Department, argued that the OFC should be banned, noting that if it can’t pass now, it should be taken off the table. When asked how to obtain regulatory consistency across all states, Eric Dinallo said it is not possible, with Mills adding that it is partly due to the lack of uniformity of state resources. Mills also added that when it comes to the insurance industry, time bombs still exist, including the accreditation of agents selling products to seniors.