Federal regulators should leave the care of ailing life insurers in the hands of state insurance regulators, according to the American Council of Life Insurers. (ACLI).
David Leifer, a vice president at the ACLI, Washington, wrote to the Federal Deposit Insurance Corp. (FDIC) in response to a notice of proposed rulemaking that the FDIC published in the Federal Register in March.
The FDIC is preparing to write regulations implementing provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act that may give it the authority to step in to resolve problems at a failing insurer if the insurance regulators in the insurer’s home state fail to take appropriate action.
Dodd-Frank requires the FDIC to follow the insurance laws in the insurer’s home state if it takes charge of resolving problems at a failing insurer.
The FDIC published an interim final Orderly Liquidation Authority rule in January.
The comment period for the noticed of proposed rulemaking ended Monday; the FDIC has posted 17 comment letters on its website.
Leifer writes in the ACLI comment letter that the ACLI’s primary concerns are that an insurance company should remain subject to state regulation for purposes of rehabilitation or liquidation, and that application of FDIC Orderly Liquidation Authority should be limited to systemically important companies.
“ACLI strongly believes that markets and consumers are best served if state insurance regulators continue to play their historic lead role in any future insurance company rehabilitation or insolvency,”
Leifer writes. “The predictability of state regulators’ continued performance of financial oversight functions, including those related to rehabilitation and liquidation, is both essential to and consistent with the [Dodd-Frank Act] goal of promoting stability.”
State regulators have, and have used, many tools to rehabilitate and liquidate troubled insurers, and state regulators have the technical experience to perform these tasks in the least costly manner, Leifer says.
In the 1990s, for example, regulators handled the failures of three nationally significant insurers at the same time, Leifer says.
“The system met its obligations to consumers, and we believe it is prepared to address any similar challenge today, including the potential failure of an insurer that has been identified as systemically important,” Leifer says.
The National Association of Insurance Commissioners (NAIC), Kansas City, Mo., already is working on developing expedited procedures that could facilitate state action if federal systemic risk trackers found that an insurer posed a risk to the financial system, Leifer says.
The FDIC should work with the NAIC to avoid unintentionally weakening the state regulatory system, Leifer says.
The ACLI also is asking that the FDIC let insurers continue to use Statutory Accounting Principles and not require insurers to submit financial statements prepared using Generally Accepted Accounting Principles (GAAP).