For insurers, the standard financial distress plan ought to be to turn to the state insurance insolvency system, according to the American Council of Life Insurers (ACLI).
David Leifer, a vice president at the ACLI, Washington, makes the case for a “call the state insurance regulators” approach in a comment letter on a rule proposed by the Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve Board. The FDIC and the Fed have suggested in the proposed rule that each large, systemically significant, nonbank financial company that they regulate ought to submit an annual “resolution report,” or “living will,” explaining how its operations could be shut down in a quick, orderly way if the company ran into trouble.
The FDIC and the Fed are drafting the rule to implement Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The ACLI does not believe that the traditional core activities of a life insurer lead to systemic risk, Leifer writes in the ACLI comment letter.
If any insurer, including a systemically important insurer, does run into trouble, then state insurance insolvency laws should apply, Leifer says.
Insurers already are subject to mandatory liquidation procedures under state law, and those procedures are much different than the Bankruptcy Code liquidation procedures that apply to other types of financial companies, Leifer says.