A top official of the American Council of Life Insurers made clear to the House Financial Services Committee last week that life insurers acknowledge that federal regulators will be playing an increasing role in their lives, and that it is best for all concerned that everyone work together in order to get the job done at the lowest possible cost.
The comments by Gary Hughes, ACLI executive vice president and general counsel, put a surprising light on a hearing that was convened by the conservative majority to express disdain for any type of federal regulation.
He did voice concern with the Federal Reserve Board. On holding company standards, Hughes said that any holding company capital requirements made applicable to a life insurer must be compatible with the company’s basic business model. “Unfortunately, the scenario we face due to the Federal Reserve’s interpretation of Dodd-Frank is one of applying bank-centric regulatory regime to a life insurer,” he said.
“The life insurance business is fundamentally different than the business of banking,” Hughes said. He said that assets, liabilities, reserves, capital, accounting, products, each of these elements of insurance structure and regulation differs significantly from those of commercial banks.
“The issue here is not whether these life insurers should be subject to holding company capital standards,” Hughes said. “They have accepted the fact they will be. The issue is making certain those standards actually work for a life insurer.”
He then noted that the whole purpose of these provisions of Dodd-Frank is to stabilize the U.S. financial system. “Disrupting the operations of well-run insurance companies by applying ill-fitting standards is fundamentally at odds with that purpose and shouldn’t occur under any circumstances,” Hughes said.
But, asked point-blank by Rep. Michael Capuano, D-Mass., ranking minority member of the Housing &Insurance subcommittee of the House Financial Services whether he supported the Federal Insurance Office or wanted it repealed, Hughes said, “We absolutely support FIO.”
His comments were impliedly support of Michael McRaith, FIO director.
McRaith testified at the hearing that, the state versus federal oversight discussion is a “binary debate” that is a relic of a bygone era.
In contrast to previous eras, the world of insurance today is vast, complex, diverse and global, McRaith said.
It is “not as it was, or as one might wish it were,” he said.
In his prepared testimony, Hughes said, “In the very near future, a major segment of the U.S. insurance business will have material aspects of its capital structure dictated or influenced by someone other than a state insurance regulator.”