An interview with Debra Hall
By Teresa Zink
For HB Litigation Conferences LLC

Debra Hall is a reinsurance consultant (www.regulatoryandriskconsultants.com) and reinsurance arbitrator (debra@hallarbitrations.com).  She served as Senior Vice President and Senior Regulatory Counsel of Swiss Re America Holding Corp. and Swiss Re America from June 2005 to Oct. 2008, and before that she was Senior Vice President and General Counsel for the Reinsurance Association of America (RAA) for more than 13 years.  She is a co-chair of HB Litigation Conferences 16th Annual Insurance Insolvency & Reinsurance Roundtable to be held April 22 to 25 at the Fairmont Scottsdale Princess in Scottsdale, Arizona. 

What would an ideal regulatory environment look like in the United States? “I think that we are nowhere near a conclusion on that point yet,” says Hall.  Looking at what has been done in other countries and sectors, she says, “I don’t think that U.S. regulators and policymakers will or should simply take everything that Europe has done in Solvency II and incorporate that into the United States.  There will need to be some changes and alterations,” to the system adopted by the European Union “that would be necessary for our market and our regulatory approach.”

Similarly, she said “I don’t think that we are going to wholesale adopt everything the banks have done in banking regulation either. This was true before the crisis  and  is especially true post-crisis.”

Post-crisis, she says, it is important to ask how effective some of these regulatory schemes really are and how they would work if applied to the U.S. insurance and reinsurance market.  “That will be a subject for the panel that we do at the April conference, because we are going to have regulators from Europe and the U.S. who will engage in precisely that discussion.” 

Right now, says Hall, “state regulators are touting state regulation as superior, or at least sufficient, because insurance companies weren’t hit as hard as banks.”  However, she points out “we haven’t seen the last of the problems. There is potentially more to come in the insurance area, particularly in the life sector and the mortgage insurance arena. Additionally, there are potentially severe consequences, as in the case of AIG, for insurance companies that were involved in other activities that have gone unregulated. This demonstrates a broad problem to which insurance regulation and insurance companies have not been immune.”  There are gaps in the current system, she says and those gaps illustrate the need for a different type of regulation.

Looking at some of the proposals that have already been considered, she noted that there have been a number of different federal regulatory proposals over the last few years.  Following the publication of the U.S. Department of Treasury Blueprint for a Modernized Financial Regulatory Structure, legislation was created that would create the Office of Insurance Information (OII).  Hall characterizes the legislation as “a very good first step, depending on how it holds up as it makes its way through Congress.” 

“But in order for the OII to be a good first step,” Hall clarifies, “the federal government needs to be given the authority and tools  to be an effective policy setter for international matters.,” .

International Policy

“Stepping back, I think it is obvious to some of us that the federal government should set international policy, and setting international policy includes issues like under what conditions non-U.S. companies can do business in this country,” says Hall.

“The requirements for and the  implementation  of entering into mutual recognition agreements between foreign countries and the United States is something that the federal government ought to be doing, not individual states.”  She said she applauds the efforts of New York and other states that have stepped forward and tried to enter into mutual recognition agreements to share information and foster cooperation between regulators.  “Given the fact that we have a state system of regulation that is the best that can be done at the moment,” according to Hall.

However, she explains, “they are entering into mutual recognition agreements  for  limited purposes, as opposed to  the more substantive  determination  governing the basis upon which  companies  can conduct business here.  For that broader more substantive mutual recognition you need to have international policy carried out at the federal level.”

In order for that to work, she explains, “it is critical that the federal government have the authority to preempt states that act contrary to that policy.  It is that very issue where the rubber meets the road with respect to the OII legislation – the power of preemption is one that state regulators and some in the industry who tend to favor state regulation don’t like. But in my view, it’s fundamental or all you have is an emperor with no clothes.”

All Options Are On The Table

So what does she predict for the future?  “I think it is still unclear what we are going to wind up with from a Federal standpoint, but I think it is clear that we are going to wind up with something,” Hall says.  Looking back at the Treasury Blueprint, she says it “had been pretty positive about the optional federal charter (OFC) concept.  Treasury had viewed the OFC as more of an intermediate type of step, but that the sort of ‘nirvana’ of regulation was more of a long term overhaul of the system.”

However, she says, “post-crisis a lot of folks are wondering if maybe we are looking at a system that leapfrogs  the OFC and takes us more immediately into that financial sector overhaul, that brings us closer to the supposed ideal than what Treasury initially contemplated at the time they issued the report. In any event, many are suggesting that the OFC might look more like the NOFC – the ‘Non-Optional Federal Charter’ for some systemically important entities.”

“We can expect that policymakers will take  a critical  look at what the so-called ‘nirvana’ was per the previous Treasury Department,” she predicts, “ and, most importantly,  we can expect  that all possibilities are on the table in terms of a far more comprehensive approach than we ever thought possible before.”