The Dodd-Frank Wall Street Reform and Consumer Protection Act will make an important impact not only on banks but also on insurance companies, a rating agency says.
Standard & Poor’s Ratings Services, New York, says it does not expect the legislation, HR 4173, would have an immediate effect on its credit ratings for U.S. insurance and reinsurance companies.
“Indeed, we believe several aspects of the reform bill could help U.S. insurance/reinsurance companies maintain their competitive positions in the global marketplace,” S&P states in a comment on the legislation.
The establishment of the Federal Insurance Office within the Department of Treasury, as provided under the act, will create a central point for information on the insurance industry, it notes. That office would also represent the U.S. in the International Association of Insurance Supervisors and help negotiate agreements by that group that affect U.S. insurers.
“In our view, U.S. reinsurers would be particularly vulnerable to increased operational costs and lower profit margins if the U.S. regulatory system were to fail to gain full equivalency recognition” among international bodies,” S&P observes. “As their cost of capital increases, the cost of reinsurance could increase, and the amount of reinsurance available to primary insurers could decrease.”
Where the Dodd-Frank bill may not be so helpful is its requirement that diversified insurance groups with $50 billion in consolidated assets and nonbank financial companies or bank holding companies be subject to the assessment on large financial firms.
“In our view, no insurance company (excluding American International Group Inc.) poses a systemic risk to the financial system,” S&P observes. “As such, the insurance groups subject to this assessment will likely make disbursements that are not specifically related to the risks borne by the insurance/reinsurance industry and will generally decrease absolute capital levels.”