Insurers which operate thrifts, organized as savings and loan holding companies, will be temporarily exempt from new tighter capital standards imposed on larger financial institutions under the Basel III capital regimen, the Federal Reserve Board opined today in a new final rule.
Charles Landgraf, a top insurance industry lawyer and partner with Arnold & Porter, who has been engaged by several insurers on the capital issue, said, “It is encouraging to see that the board has recognized further evaluation is needed before coming up with any new capital standards for insurance groups who happen to be thrift holding companies. Less positive are the implications of the board’s statement that it ‘may adjust application of [bank capital] standards’ to nonbank financial companies that are designated SIFIs. ”
Landgraf added that, “Some work still needs to be done, but this acknowledges that Section 171 (the Collins amendment to the Dodd-Frank Act) can be read as the [industry lawyers] have suggested.”
In comments inconsistent with the views of the industry lawyer and property and casualty insurance industry trade groups, the American Council of Life Insurers criticized the final rule.
“We maintain that it is inappropriate for the Fed to apply bank-centric capital requirements to any life insurer, which is consistent with the intent of the bi-partisan Insurance Capital and Accounting Standards Act (H.R. 2140),” an American Council of Life Insurers (ACLI) spokesman said.
“We will continue to support a more appropriate approach for all life insurance companies where life insurer capital requirements differ from capital requirements for banks,” the ACLI spokesman said.
U.S. Rep. Gary G. Miller, R-Ca., who introduced H.R. 2140 in May, said his legislation is still necessary.
”I applaud the Federal Reserve’s decision to exempt insurance companies from the Basel III capital standards until they can perform further evaluation. While this is welcome news my legislation is still necessary since current law does not require the Fed to use insurance-specific regulatory standards,” Miller said in a statement to National Underwriter.
The Fed also said in the new regulation that insurers will be exempt from capital standards imposed on large banks, do not have to use Generally Accepted Accounting Principles to prove they are exempt, but will be allowed to estimate.
The new rule also said that the Fed will implement a separate capital framework for insurance savings and loan holding companies (SLHCs) to comply with by 2015.
The final rule gives insurers a great deal of what they hoped for in relation to implementing the Basel III regulatory standards, which is a framework centered on imposing higher bank capital standards in the wake of the 2007-2010 financial crisis.
It also deals with new regulatory requirements for insurers imposed by the Dodd-Frank financial services reform law.
It appears that even insurers designated systemically significant will be granted some flexibility in complying with the heightened capital standards that will be imposed on nonbank SIFIs.
American International Group (AIG) will accept and Prudential Financial will fight the SIFI designation, the companies announced separately late Tuesday.