Best Enemies

“By collecting more information in advance of designation, the FSOC can be much more judicious in determining which firms it designates as systemically important financial institutions, or SIFIs,” Bair said.

All of this points toward the increasingly rocky relationship between the National Association of Insurance Commissioners and the FSOC.

In comments at a private conference in New York Feb. 28, Susan Voss, NAIC president, compared the treatment of insurers on the FSOC “to the Thanksgiving feast where children are kept to a separate table.”

Ms. Voss voiced concern at the conference, in a memo to the National Underwriter and in a letter on Feb. 9 to Treasury Secretary Timothy Geithner about the Treasury’s interpretation of the limited role of Missouri Insurance Commissioner John Huff on the FSOC.

Voss also voiced concern that the Obama administration has not as yet seen fit to nominate the independent insurance representative to the FSOC required by the Dodd-Frank law, as well as the fact that the Treasury Department has as yet not named the director of the Federal Insurance Office.

That post, mandated by statute, was created to insure liaison with state regulators and to provide information to the Treasury secretary on domestic and international insurance issues.

Specifically, Huff is being barred by the FSOC staff, as stated in by Voss at the New York conference, “under threat of death,” to discuss FSOC business with either the NAIC or individual state commissioners.

The same confidentiality is being enforced regarding the three NAIC staffers who are assisting Huff in his work with the FSOC.

The NAIC is getting in its licks, too, however. According to several sources, the NAIC has declined an FSOC request to allow staffers the same access to insurance data maintained by the NAIC as provided to state insurance commissioners.

According to these sources, this is partially in response to the decision of Congress not to specify that the FSOC must use the NAIC database in order to track the financial status of insurance companies in the Dodd-Frank financial services reform law that created the FSOC.

The comments were sent to the FSOC in regards to the agency’s request for establishing what objective criteria it will use in determining whether to designate nonbank financial companies (“NBFCs”) for prudential supervision by the Federal Reserve Board under Sec. 113 of the Dodd-Frank financial services reform law.

Eric Arnold, a partner specializing in insurance regulation at Sutherland, Asbill & Brennan in Washington, D.C., characterized the insurance industry comment letters on the FSOC proposal as questioning the FSOC’s authority to promulgate a regulation that provides no analytical framework for determining whether an insurer constitutes a potential threat to financial stability and should therefore be subject to federal as well as state oversight.

He said “it will be very interesting” how this plays out.

He sees congressional pressure on the FSOC not to promulgate the rule establishing a framework within the framework itself for determining if an insurer is systemically risky until the FIO post is filled and the independent insurance member of the FSOC is nominated by the administration and confirmed by the Senate.

Arnold cites letters from members of both the House and Senate on the independent FSOC member and FIO director appointments as potentially forcing the FSOC to delay the applicability of the federal oversight provisions to insurers until these officials are seated.