WASHINGTON BUREAU — The Treasury Department’s systemic risk bill could create an Office of National Insurance that would have narrow but strong authority over solvency and international issues.
The ONI section of the bill would give the proposed ONI the authority to designate insurers as systemically risky and use subpoenas to collect information from insurers.
In April, Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House Financial Services Committee, introduced H.R. 2609, a bill that would create a federal Office of Insurance Information within the Treasury Department.
The ONI section of the Treasury Department’s bill is somewhat different from the OII bill.
The Treasury Department’s ONI provision is part of a much longer bill that would create a Financial Services Oversight Council, a body that would include all existing federal regulators and replace the current “Plunge Protection Team.” The FSOC would have the power to “facilitate coordination of financial regulatory policy and resolution of disputes and identify emerging risks in financial markets.”
The bill would subject all “Tier 1″ financial services holding companies to consolidated supervision and regulation by the Federal Reserve “regardless of whether they are owned by insured depository institutions.”
The Treasury Department’s bill would give the proposed ONI the power to designate insurers as “Tier 1 financial holding companies.”
The insurers classified as Tier 1 financial holding companies would be subject to the nonfinancial activities restrictions in the Bank Holding Company Act, whether or not they were banks. Like other Tier 1 institutions, the Tier 1 insurers also would face tougher capital, liquidity and risk management standards than those that apply to other bank holding companies.
If regulatory capital levels at a Tier 1 company declined, it would face demands for prompt corrective action, under a regime that would “mirror the prompt corrective action regime for insured depository institutions established under the Federal Deposit Insurance Corporation Improvements Act,” the Treasury Department says.
All Tier 1 companies would have to maintain a credible plan for the rapid resolution of the company in the event of severe financial distress.
The proposed ONI also would:
- Oversee the Terrorism Risk Insurance Program.
- Craft federal policy on the prudential aspects of international insurance matters.
- Represent the United States in dealings with the International Association of Insurance Supervisors, Basel, Switzerland.
The ONI would be empowered to evaluate whether state insurance laws were preempted by “International Insurance Agreements on Prudential Measures.”
The agreements involved would include both bilateral and multilateral agreements “regarding prudential measures applicable to the business of insurance or reinsurance,” according to the bill text.
The preemption provisions in the Treasury legislation seem to be tighter than the provisions in H.R. 2609, according to several lawyers who asked that their names not be used.
There is no provision in the current version of the Treasury bill that would let the Treasury secretary stay the preemption, one lawyer says. The bill also does not give Congress the power to nullify a preemption determination.
The bill deals with potential conflicts with state regulators by mandating a notice-and-comment procedure.
This procedure would permit interested parties to comment, after which the ONI could decide whether to make a determination of inconsistency. A preemption would become effective following a “reasonable period of time,” to be determined by the ONI.
But the new bill would prohibit the ONI from preempting state laws concerning rates, premiums, underwriting practices, coverage requirements, or application of state antitrust laws.
The National Association of Insurance and Financial Advisors, Falls Church, Va., expressed support for the Treasury Department’s ONI provision.
There are many federal agencies that have a role in regulating different aspects of the insurance sector, “and yet we remain the only financial services industry for which there is no one central federal body of expertise,” NAIFA President Cliff F. Wilson says.
The American Council of Life Insurance, Washington, says it is still reviewing the bill to determine how it might affect ACLI members.
“We hope that the ONI represents the first step towards creation of a modern, efficient insurance regulatory system that includes an optional federal charter,” ACLI President Frank Keating says. “Life insurance is a national industry and should have the opportunity to function under a national regulator.”