Insurance companies and trade groups—both property and casualty and life—are pulling out all the stops in an effort to thwart or delay the Federal Reserve Board’s efforts to impose consolidated regulation of them through its new authority to oversee thrift holding companies.
For example, in a meeting with Federal Reserve Bank of Chicago officials last month, American Council of Life Insurance (ACLI) staffers asked the Fed not to impose new capital standards on thrift holding companies owned by insurers.
The ACLI argued, in comments at the meeting and in statement submitted at a House hearing, that the Fed proposal inappropriately applies bank-centric standards and methodologies to insurance companies.
And, the ACLI asks that implementation of the rule for insurers be delayed until July 21, 2015.
The ACLI statement submitted at the hearing said that, The ACLI is “very troubled” by the June 7 rulemaking which applies bank-centric standards and methodologies to insurance companies.
The ACLI request at the meeting with Chicago Fed officials asks that insurers get the same transition treatment under the Dodd-Frank financial services reform law accorded to U.S. subsidiaries of foreign bank holding companies which have assets of more than $50 billion under a different provision of Dodd-Frank.
And, in a statement submitted at the House hearing, the Property Casualty Insurers Association of America (PCI) even complains about the Fed decision to ask property and casualty insurers with thrift subsidiaries to provide certain information to the agency about their thrifts.
On May 1, The National Underwriter disclosed that the Fed, through a provision of Dodd-Frank, had asked staffers at its Chicago and Boston banks to develop metrics needed to evaluate the financial health of insurers who may come under consolidated Fed supervision because they own thrifts.
“PCI has numerous insurance members with small thrifts that just received several hundred pages of proposed capital rules from the federal banking agencies,” PCI officials said in the statement.
“Just the management and legal staff required to understand these new rules is taking significant unmeasured time and resources away from new business and development and growth,” the statement said.
“These industry costs will inevitably have an impact on the cost of products for consumers and could also have a negative impact on employment in the insurance industry as well,” the statement said.
“Especially at this time, when our nation faces significant economic challenges and unacceptably high levels of unemployment, the Federal government should not increase economic burdens on consumers by imposing new financial regulatory burdens without demonstrating significant need or gaps,” the statement said.
While industry officials argued at the hearing and in numerous filings that insurers did not contribute to the 2007-2009 financial crisis, consumer advocate Birny Birnbaum disagreed.
In his comments, Birnbaum focused on activities at the holding company level, which the June 7 proposal seeks to address.
At the July hearing, he said, “My experience and observation is that insurers did contribute to the financial crisis and the limitations of state-based insurance regulation became apparent as the crisis unfolded.”
Birnbaum added that, “State-based insurance regulation certainly has its strengths, but Dodd-Frank has assisted and strengthened state-based insurance regulation.”
He also testified that on the property casualty side, we must start with the spectacular collapse of American International Group, which resulted in a massive taxpayer bailout.
“AIG certainly contributed to the financial crisis because of its huge bets on credit default swaps,” he said.
While state insurance regulators have argued that it was the non-insurance subsidiaries of AIG and not the insurance companies of AIG which caused its collapse, “the fact remains that state insurance regulators were not able to monitor AIG at the broader holding company level.”
“State insurance regulators had, and have, limited expertise with the non-insurance aspects of a holding company with significant insurance operations,” he said.
In addition, Birnbaum said, “state insurance regulators missed risky investment activities by AIG insurers involving the lending of securities.” These activities involved using high-rated securities held by AIG’s life insurance subsidiaries to collateralize acquisition of mortgage-backed securities of dubious quality.
Federal regulators, the board of governors of the Federal Reserve System, the Office of the Comptroller (OCC) of the Currency, and the Federal Deposit Insurance Corporation, proposed the rules June 7.
Several weeks ago, it extended the comment period on the new rules until Oct. 22.
The proposal would subject institutions which have thrift holding companies to the same capital standards as banks at the holding company level except for certain unique insurance activities.
An industry lawyer who asked not to be named said that between 25 and 27 insurance companies which operate thrifts could be subject to Federal oversight under the proposed capital standards. The lawyer, based in Washington, D.C. asked not to be named because he is advising several clients who are dealing with the proposal.
The federal agencies are acting under a provision of Dodd-Frank which shut down the Office of Thrift Supervision and shifted its responsibilities to the Fed and the OCC.
The industry lawyer also said the Fed is acting through an amendment to Dodd-Frank sponsored by Sen. Susan Collins, R-Maine, mandating that federal regulators impose consolidated capital standards on thrift and bank holding companies they supervise. The provision is Sec. 171 of Dodd-Frank, the lawyer said.