WASHINGTON BUREAU — Insurance groups have problems with the systemic risk oversight section of the Financial Stability Improvement Act of 2009 draft.
The House Financial Services Committee is in the process of marking up the FSIA draft.
The systemic risk provisions would give federal regulators authority to oversee insurance holding companies if they believe problems at those companies could threaten the stability of the financial system.
The FSIA draft would give the Federal System, the Federal Deposit Insurance Corp. and a council of federal regulators broad authority to deal with so-called “too big to fail” financial institutions, including non-banks such as insurers.
The draft would give a proposed Financial Services Oversight Council authority to designate “financial companies” – which expressly include U.S. and foreign non-bank financial institutions such as insurers – for heightened prudential regulation.
FSIA would not give the FSOC the authority to oversee the operating subsidiaries of insurance companies.
The American Council of Life Insurers, Washington, has sent one letter to Financial Services Committee members, and the major property-casualty groups have sent committee members a separate letter.
The p-c groups that signed the letter are the American Insurance Association, Washington; the Independent Insurance Agents and Brokers of America, Alexandria, Va.; the National Association of Mutual Insurance Companies, Indianapolis; the Property Casualty Insurers Association of America, Des Plaines, Ill.; and the Reinsurance Association of America, Washington.
The groups are asking that large insurers not be subject to any oversight by bank regulators unfamiliar with the insurance industry regulatory scheme.
They also are asking that bank regulators not have the authority to determine whether insurers should be responsible for contributing into a fund that would be used to pay for resolving troubled financial institutions.
In addition, they are questioning a proposed amendment that would require institutions that are designated systemically important to pay in advance into a fund that would be used to resolve insolvent financial institutions.
Rep. Luis Guitierrez, D-Ill., could introduce a “pay in advance” amendment today during the FSIA markup.
“We strongly oppose the idea of pre-funding because it runs counter to our own resolution system,” the p-c groups write in their letter. “We see no benefit to our industry and its customers that would flow from adopting an amendment to pre-fund the enhanced resolution authority.”
ACLI President Frank Keating writes in the ACLI’s letter that FSIA would change the Bank Holding Company Act to effectively treat operating insurance companies as if they were national banks merely because they are in a holding company system that also owns an ancillary non-bank depository institution.
“Many insurance companies insurance holding company systems contain small thrifts that are used to enhance the services provided to policyholders,” Keating writes.
“Although policy makers may see a need to restructure the regulation of thrifts, that should be done in a way that does not damage the other corporate entities within the holding company,” Keating writes.
As currently drafted, the BHCA changes would subject these insurers to the full prudential oversight of the Federal Reserve Board as well as to all the significant affiliate transaction and cross marketing prohibitions applicable to national banks,” Keating writes.
“Insurance companies should not be regulated as banks,” Keating writes.
The breadth of the Federal Deposit Insurance Company’s proposed authority to determine who will and will not be assessed “will result in a grossly unfair and inequitable burden placed on insurers,” the Keating writes.
The FDIC has “an interest in protecting banking institutions subject to FDIC assessments from these double assessments, and therefore can reasonably be expected not to subject that constituency to assessments under this proposal,” Keating writes. “This will inevitably result in increased assessments on insurers, as the FDIC is not knowledgeable enough on the workings of our industry or the guaranty association system protecting policyholders to understand the impact of such assessments on the financial health of the industry.”
Keating points out that insurers already are subject to a state-run insolvency system and already pay assessments into guaranty funds.
The p-c groups contend that they have not posed a systemic risk to the U.S. financial system or to the economy during the current economic crisis and ought to be excluded from the systemic risk oversight system.