Dodd-Frank requirements could lower insurers' exposures

DALLAS  Nov. 11, 2013–In response to the financial crisis of 2008, the U.S. Congress passed the Dodd-Frank Act (DFA), officially known as the Wall Street Reform and Consumer Protection Act of 2010, with provisions targeting a wide variety of financial markets. Among the law’s many provisions is Title VII, also known as “Wall Street Transparency and Accountability,” which aims to boost transparency in the pricing of derivative transactions–specifically swaps, which insurers and others financial institutions commonly use. Swaps within the scope of this regulation are defined in section 1a of the Commodity Exchange Act and include, but are not limited to, interest rate swaps, credit default swaps, and total return swaps.

 

Insurers employ derivatives primarily to hedge against specific risks in their investment or liability portfolios. Derivatives used to generate income are generally a very small proportion of insurers’ total investment holdings.

 

In a new S&P report, “The Dodd-Frank Act: Title VII Swap-Clearing Requirements Could Lower U.S. Insurers’ Counterparty Exposures,” published Nov. 11, 2013, on RatingsDirect, Standard & Poor’s Ratings Services says that it believes Title VII could improve insurers risk management processes. We also believe Title VII could have an impact, albeit it a minor one, on our ratings on the insurance industry.

 

To read more about the report, which is sold upon request, please click here.