Highlights:
IAIS: A Global Regulator with Outsized Influence
The IAIS is an international NGO based in Basel, Switzerland that shapes insurance regulation across the globe. The organization wields significant influence over the direction of insurance regulation that can conflict with U.S. interests. Indeed, the organization has actively promoted incorporation of ESG and DEI principles within insurance regulation that is inconsistent with prevailing U.S. policy. As part of an ongoing process to assess the capital structures of internationally active insurance groups (IAIGs), the group has issued a draft report evaluating industry investment trends. The report examines the life insurance industry’s diversification of firm portfolios into alternative assets and cross-border reinsurance but takes a disproportionately negative view of this trend.
Beyond the substance of the evaluation, the report raises a genuine concern over how IAIS arrogates U.S. regulatory authority. Though it lacks formal jurisdiction in the United States, its proposals shape policy through the National Association of Insurance Commissioners (NAIC), creating a backdoor for global insurance standards. As noted in comments to the Federal Reserve, IAIS pressures U.S. regulatory agencies into aligning with international capital standards. While U.S. state-based regulators have made some progress in pushing back against IAIS’s attempts to impose a one-size-fits-all capital standard on U.S. insurance groups, regulatory risks remain. This process weakens the state-based insurance regulatory model, which has long ensured market stability and competition. This report attempts to assert a definition of “alternative assets,” but as the report acknowledges, the U.S. already has such a definition in place. Unelected bureaucrats based in the EU should not be in the business of defining U.S. insurance regulation, especially when they have no supranational authority to do so.
Related, market observers such as the American Council of Life Insurers and the U.S. Chamber of Commerce have repeatedly warned that IAIS’s monolithic Insurance Capital Standard (ICS) is ill-suited to the U.S. market. In response, U.S. regulators developed the Aggregation Method, a more appropriate alternative. At year’s end, IAIS accepted the U.S. approach, but it made clear its intention to influence this process as it is implanted over the coming months and years.
IAIS’s Flawed View on Alternative Assets
Beyond the structural concerns over IAIS’s influence over U.S. insurance regulation, IAIS’s skepticism of alternative investments is misplaced. The report raises concerns about valuation uncertainty, liquidity constraints, and leverage risks, portraying insurers’ growing use of private equity, real estate, and infrastructure investments as inherently problematic. Yet this perspective ignores the reality of modern insurance portfolio management.
Insurers have turned to alternative investments not recklessly, but in response to market conditions, particularly low interest rates. These assets allow insurers to align long-term liabilities with long-term investments, hedge against inflation, and diversify away from traditional bond-heavy portfolios. IAIS’s characterization of alternative assets as a systemic threat dismisses both their economic benefits and the sophisticated risk-management strategies insurers employ.
Private credit, infrastructure, and middle-market lending provide crucial capital to industries that banks have increasingly abandoned. Rather than recognizing this as a stabilizing force, IAIS treats it as a vulnerability. Even within its own report, IAIS concedes that alternative asset exposure does not currently present a systemic risk, yet it still recommends heightened scrutiny. This contradiction suggests that IAIS is less concerned with data-driven oversight and more focused on expanding its regulatory influence.
One example of the IAIS exerting its influence on the U.S. is its erroneous and unsubstantiated concerns with regard to “credit rating shopping.” As the IAIS report points out in one footnote, the NAIC’s Securities Valuation Office is setting standards for how the NAIC will make its own credit ratings determinations if it decides the external “investment risk assessment is not reasonable for regulatory purposes.” The IAIS is blatantly discriminating against private securities because their structure differs from public securities. This regulatory overreach subverts U.S. common law, which has already determined that private funds differ from public funds and therefore are treated differently under U.S. law.
The Path Forward
IAIS’ Issues Paper is the latest example of global regulators attempting to dictate how U.S. insurers operate, often without input from those responsible for overseeing the American market. While international collaboration can be beneficial, it cannot come at the expense of U.S. regulatory independence.
Congress has already made clear that international capital standards should not be adopted in the United States without transparency and legislative review. The Economic Growth Regulatory Relief and Consumer Protection Act mandated annual congressional oversight of global insurance agreements through 2024. The provision in section 211 expired, but should be renewed. The precedent for legislative oversight should continue perennially.
If IAIS succeeds in reshaping how U.S. insurers operate, this will not stop at capital standards. The broader strategy – redefining routine industry practices as systemic risks – will serve as justification for further interventions. That is why this moment is critical. If U.S. regulators fail to resist this overreach, they risk becoming enforcers of IAIS mandates rather than defenders of American market interests.