Regulation and Compliance > Federal Regulation

Sen. Collins says Dodd-Frank amendment should lighten up on insurers

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It was not Congress’s intent that federal regulators “supplant state-based regulation with a bank-centric capital regime,” Sen. Susan Collins, R-Maine, said in a letter to Federal Reserve Chairman Ben Bernanke and other U.S. banking regulators Nov. 26, weighing in after pressure from the insurance industry.

Her letter tells the crafters of capital rules that insurance companies should be treated differently from banks and her intent was not to have them treated the same, a point which the industry and the NAIC have been making before the Fed and others. Washington lobbyists had hoped Collins would chime in, and now she has, a day before a scheduled hearing on Basel III capital standards implementation before a joint hearing before the Insurance, Housing and Community Opportunity and Financial Institutions and Consumer Credit Subcommittees.

Kevin McCarty, Florida Insurance Commissioner is scheduled to testify on behalf of the NAIC as the association’s president.

Collins is the author of the Collins Amendment in Dodd Frank Act (Section 171), which requires bank holding companies to be subject to certain capital requirements. Insurers and NAIC staff have said they have had conversations with Collins’ staff and requested she tell the Fed her intent was not to subject insurers to strict bank capital standards if the Fed was their prudential regulator. In October, a raft of Senators did make the case, and now Collins is adding to their collective voice. 

The trouble to insurers is that the amendment ropes in the roughly two dozen or more that have savings and loans/thrifts, ones as disparate as TIAA-Cref, The Principal Financial, Nationwide, USAA, Country Financial and Mass Mutual. These savings and loan holding companies (SLHCs) are subject to proposed rules under development by the federal banking regulators, and do not have the compliance delay built in for foreign-owned banks.

“I do not understand why the proposed rules fail to implement this provision, as required by Congressional intent and the clear language of the statute,” she wrote in the letter, referring to a delay applying to SLHCs.

The American Council of Life Insurers (ACLI) said it welcomed Collins’ letter. Collins office did not return a call.

Collins added that companies will need time to adjust their balance sheets in order to comply with the new capital standards. They were to go into effect Jan. 1, 2013, but on Nov. 9, the three U.S. federal banking agencies delayed the implementation date under a massive campaign by insurance (and banking) industry lawyers. 

“The agencies’ decision to delay implementation of Basel III is understandable given the complexities of the issue. As stated in our October 12 comment letter, ACLI supports the application of risk-based capital standards for insurers over the bank-centric capital standards from Basel III,” stated the ACLI after the initial delay.

Also, Collins championed the industry’s main line of thought with regard to these standards in that “consideration should be given to the distinctions between banks and insurance companies, a point which Chairman Bernanke rightly acknowledged in testimony before the House Banking Committee this summer.”

Banks and insurers typically have different composition of assets and liabilities, since it is fundamental to insurance companies to match assets to liabilities, unlike most banks, she said, as have insurers.

In a letter to the Fed last month, Nationwide Mutual Insurance Company said the Basel III regulation, if adopted as proposed, “could threaten the existence of the savings and loan holding company industry.”

Insurance CFOs suggested in an Oct. 22 letter to the banking regulators that because insurance companies that have savings and loans have not been regulated by the Fed previously, new capital requirements should not be applicable until July 15.

“Such companies have never been subject to Basel requirements and this extremely short transition period is unduly burdensome and contrary to the express intent of Congress in the Collins Amendment,” the CFO letter said. 

Furthermore, the CFO letter said that the proposed rules would require the implementation of GAAP accounting standards by January 2013 [the initial date of implementation], “which is simply infeasible for insurers not currently reporting under GAAP (Generally Accepted Accounting Principles).

“There is insufficient time for insurers to implement the systems and processes necessary to provide the data required by the proposals,” the CFO letter said.

The NAIC has taken a matter-of-fact approach in its comments on how federal agencies should provide consolidated regulation of insurance companies which operate savings and loans.

An NAIC comment letter responded to specific questions asked by federal regulators regarding separate accounts, the general treatment of insurance underwriting, surplus notes and policy loans. 

As members of the Basel Committee on Banking Supervision, the U.S. agencies have stated that they take seriously their internationally agreed timing commitments regarding the implementation of Basel III and “are working as expeditiously as possible to complete the rulemaking process.”

The agencies, led by the Federal Reserve, include the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC).

Northwestern Mutual is one insurer who has gotten out of the clutches of the Fed’s capital rules.