As the insurance world awaits the insurance modernization report from Treasury’s Federal Insurance Office (FIO), perhaps in the coming week or weeks, the pace of discussion between insurers and federal regulators continues, a federal regulation is already here, or imminent, for some.
MetLife and other insurers, in a variety of capacities, continue to meet with Federal Reserve Board (FRB) members to make a case for the need for regulation to be insurance-company specific, and not done under the same model as that for what it views as a very different animal: banks.
Financial institutions regulated by the Fed, which now include about two dozen insurers – and could increase to more – are subject to its prudential standards, and some will also face enhanced capital standards if found to be systemically important through an ongoing process. The first fruits of this process are expected to be announced after meetings with the companies and final details are worked through.
On Jan. 25, Federal Reserve Board staff and four representatives of MetLife, Inc. met to discuss MetLife’s views on the board’s proposed approach to imposing regulatory capital requirements on insurance holding companies.
This perhaps refers to the Basel Committee on Banking Supervision’s Basel III for liquidity risk measurement, standards and monitoring of banks and thrifts under the Fed’s purview, here in the U.S. It requires the imposition of enhanced capital standards, originally designated to have gone into effect Jan. 1, and which have been delayed by the Fed by request.
The proposals had given an effective date of Jan. 1, 2013, and insurance companies with thrifts are to be subject to the new capital rules, as well, when they are effective.
Fed regulators, led by the Board of Governors of the Federal Reserve System, want to use the capital standards to provide consolidated regulation of insurers which operate thrifts. The rules were proposed in June and a comment period given, and then delayed until Oct. 22 after pressure from banks, insurers and a Congress unhappy with the new standards and the short time frame.
The proposal would subject institutions that have thrift holding companies to the same capital standards as banks at the holding company level, except for certain unique insurance activities.
In connection with the discussion, the MetLife representatives provided information about their capital position.
The Fed did not clarify what was meant by “capital requirements on insurance holding companies,” which was taken to mean Basel III.
MetLife remains a bank holding company but is expected to finish selling off its bank soon to GE Capital. It is still subject to the Federal Reserve’s stress testing requirements for bank holding companies but received a letter granting an extension until June 30, 2013, for MetLife to submit capital plans under the Federal Reserve’s capital plans rule. There is a good chance it will not be a BHC then, but could come under Fed scrutiny if it gets caught up in the SIFI (significantly important financial institution) net under the Financial Stability Oversight Council (FSOC).
“As we have said many times, we do not believe regulated insurance activities pose systemic risk to the U.S. financial system,” a MetLife spokesperson said.
“However, in the event that MetLife and other insurance companies are named as SIFIs, we continue to engage in discussions with regulators concerning the need for prudential standards to be tailored for the life insurance business model, which differs dramatically from that of banks,” he said. MetLife and Allstate Corp., as well as members of the Financial Services Forum Policy Roundtable, met with Fed Governor Jerome H. Powell, a former undersecretary of the Treasury, earlier in January to discuss experiences and concerns with respect to portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Meeting participants also discussed large bank resolution and Title II of the Dodd Frank Act, and further inquired about the degree of cooperation among federal agencies, including federal banking agencies. Title 11 concerns the orderly – quick and efficient – liquidation of complex, large financial institutions.
Also, the American Council of Life Insurers (ACLI) wrote the Fed in mid- January outlining concerns to the board’s approach to stress testing as applied to life insurance companies, arguing that a bank model is too overbearing for an insurer, and also suggesting that there be little to no public disclosure of stress test results of any insurer, only banks.
Treasury and the Federal Reserve did not comment on this story.