Insurers and insurer groups have sent a number of delegations to talk to Commodity Futures Trading Commission (CFTC) officials about implementing the new swaps rules.
Congress created the swaps rules in the Dodd-Frank Wall Street Reform and Consumer Protection Act because of a concern that unregulated use of swaps had contributed to the 2008 financial crisis by exposing swaps participants to tens of billions of dollars in unexpected collateral calls and trillions of dollars in theoretical exposure to default risk.
In the act, Congress defines a “swap” as any agreement that is a “put, call, cap, floor, collar, or similar option of any kind that is for the purchase or sale, or based on the value, of one or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind.”
Congress also has created a definition for “security-based swap,” which includes any swap that incorporates a security; calls for the CFTC to oversee the swaps market together with the U.S. Securities and Exchange Commission (SEC); and requires many swaps users to conduct deals through exchanges or clearinghouses, rather than conducting the deals “over the counter.”
The CFTC has been drafting regulations that would apply to interest rate swaps and currency swaps as well as to swaps involving physical commodities, and it appears that many insurers that have never taken an interest in wheat or gold futures will be running into the CFTC more often.
The CFTC has been posting a log of Dodd-Frank Act-related meetings, and the log shows that insurers, insurance groups and insurance regulators have taken a keen interest in the CFTC.
Representatives from the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., met with CFTC officials about the swaps rule definitions Sept. 1, Sept. 29, Oct. 5 and Monday.
The Consumer Federation of America, Washington, visited Sept. 23, and pension plans and pension plan sponsors called Sept. 17.
Several insurers visited the CFTC with a group of large financial institutions Oct. 6. That group included representatives from American International Group Inc., New York (NYSE:AIG); MetLife Inc., New York (NYSE:MET); and Prudential Financial Inc., Newark, N.J. (NYSE:PRU).
On Nov. 6, representatives from 6 insurers and the American Council of Life Insurers (ACLI),