The National Association of Insurance Commissioners (NAIC) has weighed in on the final rule issued by the Financial Stability Oversight Council (FSOC) on April 3 by noting that insurance isn’t a natural fit for a SIFI but that it was glad to state insurance regulators would be involved in the process.
The extent to which they will be involved remains to be seen, but a quick scan of the final rule did not overly-emphasize their expected involvement— states of domicile, nor commissioners, nor the NAIC are mentioned, per se, in the final rule.
However, ”supervisory agency,” is from the rule on designations of financial market utilities (FMUs,) not nonbank financial companies. For nonbanks, the relevant term is “primary financial regulatory agency,” which is defined in the statute and in the text to include, in certain circumstances, state insurance regulator, not nonbank financial companies, according to a Treasury spokesman. For nonbanks, the relevant term is “primary financial regulatory agency,” which is defined in the statute and in the text to include, in certain circumstances, state insurance regulator, he noted.
The rule outlines the FSOC’s authority and the process and metrics it will use to designate by the end of the year various non-bank financial companies as systemically important financial institutions (SIFIs).
The SIFI designation is intended to allow for enhanced supervision and regulation by the Federal Reserve. See: //www.treasury.gov/initiatives/Documents/Finalruledisclaimer7-18-2011.pdf
“While I continue to believe that traditional insurance activities are not systemically risky, I am pleased that they appreciate the importance of meaningful consultation with state insurance regulators in its designation process,” said NAIC President and Florida Insurance Commissioner Kevin McCarty.
Section 804 of the Dodd-Frank Act grants the FSOC the authority to designate an FMU that the Council determines is or is likely to become systemically important because the failure of or a disruption to the functioning of the company could create, or increase, the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the U.S. financial system.
The 52-page final rule refers to consultation with one or more supervisory agencies but appears to define Supervisory Agency that is not a state regulator, per se.
However, FSOC is supposed to coordinate with supervising bodies of information and data collection, if necessary, as it makes its determinations.
“It looks to me like the state insurance regulators are second-class citizens in comparison to their federal banking counterparts (but so are state securities and banking regulators, apparently,” said an insurance lawyer who reviewed the final rule.
Adequate consultation with state insurance regulators has long been a concern of the NAIC. Regulators had previously indicated at the end of 2011 that they “have quite a bit of information to contribute to the process including examination and analysis reports, asset/liability modeling results, asset adequacy analyses, group holding company information, and a world-leading database of information about each insurance company.”