The insurance industry has been helping birth new legislation that would address one of the most vexing issues for insurers in the Federal Reserve’s stable of supervision.
H.R. 2140, Insurance Capital and Accounting Standards Act of 2013, introduced in the House by Rep. Gary G. Miller, R-Calif., and Carolyn McCarthy, D-N.Y., would offer relief from the Dodd-Frank Act requirement that the Fed’s proposed capital standards for banks must apply also to nonbanks, such as insurers, if they fall under Fed supervision.
The bill was introduced May 23 and immediately lauded by the life insurance industry.
Insurers that are or could be under the Fed’s supervision include those with thrift holding companies such as State Farm and TIAA-Cref and some banks insurance subsidiaries, plus any insurer designated systemically important financial institution (SIFI).
Insurers who have thrifts have tried to de-thrift, some successfully, others not, to get out from under the requirement.
Specifically, the bill would still preserve capital standards for insurers but make sure that the capital standards for insurance companies are aligned with their asset and risk profile. The capital would be matched to the liabilities and risk-based capital, the hallmark of insurers would hold sway.
The issue is important for insurers, who worry that bank capital rules don’t make sense for their structure and business and could actually hurt their solvency if imposed.
Miller stated, “the Federal Reserve is mixing apples and oranges by imposing bank-centric rules on insurance companies, which have completely different business models and capital structures. As written, this proposal will lessen the availability and increase overall costs of insurance products and services to consumers and businesses in my district and across the country.”
Last year, the Federal Reserve Board proposed new capital requirements for all financial institutions under Basel III.
The Fed’s proposal would require insurance companies to meet the same capital standards as banks, without regard to the distinctly different risk profile and business model of insurance companies, under Section 171 of the Dodd-Frank Act, according to Miller.
Life insurance companies should always be subject to capital rules designed specifically for the types of risks they assume and insurance risk-based capital is the appropriate benchmark for life insurers, argue insurers.
Indeed, insurers have been trying to find a way out of Section 171 for some time, and the Federal Reserve lawyers have also been looking at the language. Many letters have been written from industry, a group of senators led by Sen. Sherrod Brown, D-Ohio, even Sen. Susan Collins, R-Maine, for whom Section 171 is named, in attempts to alleviate the requirements. More recently, U.S. Senate Banking, Housing and Urban Affairs Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, joined the many voices in Congress protesting proposed capital standards under Basel III as applied to community banks, and for that matter, insurance companies with thrifts, in a February letter.