Signs are emerging that the sigh of relief by large insurance companies that they escaped federal oversight in the post-AIG bailout world may have been premature.
Sam Caligiuri, a partner at Day Pitney, LLP, in Hartford, said implementation of the Dodd-Frank law is the “cutting edge issue as it relates to insurance regulation at this time.”
He said the Dodd-Frank law gives “the federal government unprecedented power over the insurance industry.”
He said that how Dodd-Frank gets implemented in the regulations that are being promulgated right now “will ultimately determine the amount of power that the federal power can exercise over the regulation of insurance.”
As a result, Caligiuri said, “this rulemaking has the potential to fundamentally alter what has been the state’s historic role as the primary regulator of the insurance industry.”
For example, the American Council of Life Insurers voiced concern about the Federal Stability Oversight Council’s approach to determining if an insurer is systemically risky in comments on a regulatory proposal filed Feb. 25.
In the comment letter, the ACLI, representing the entire life industry, voiced alarm about the FSOC’s desire to determine if insurers are systemically risky and therefore subject to federal oversight based on subjective scrutiny of their books by federal examiners–not on hard and fast rules that insurers will be able to challenge in court.
The ACLI asked the FSOC to clarify the “actual measures and other criteria” that regulators will use in classifying an insurer as subject to federal oversight.
The letter says the ACLI wishes “to state in the strongest possible terms our concerns with lack of substance of this proposed rule.”
The letter said that the proposed regulation “does little more than restate provisions already contained” within the law itself.
Seven property and casualty insurers with federally regulated thrift operations are so concerned about the emerging trend that they have formed a separate coalition focused on challenging the FSOC’s proposed subjective approach.
The letter written by the coalition of seven insurers contended that the “proposed regulation must provide clearer guidance to non-bank financial companies regarding the standards or methodology that the FSOC intends to use to make determinations under the proposed regulation.
The letter insists that the FSOC “must articulate the objective criteria it intends to use as a matter of public policy.”
Moreover, in testimony before the Senate Banking Committee on Feb. 17, Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said that insurance companies designated systemically risky by federal regulators may need to provide data that is not currently collected or otherwise available in public filings.
Bair also said that the FSOC gives regulators the authority to ask the Federal Reserve Board to conduct an examination of a company that is being considered for designation as systemically risky.