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Insurers take on bank capital requirements

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A hearing will be held today by a Senate Banking Committee subcommittee on capital requirements for insurance companies now regulated by the Federal Reserve, including nonbank SIFIs and insurance companies with savings and loan holding companies (SLHCs).

The “Collins amendment,” authored by Sen. Susan Collins, R-Maine, requires the Federal Reserve Board to impose certain minimum leverage, liquidity and risk-based capital requirements on holding companies, including savings and loans and systemically important nonbank financial companies it oversees.

The amendment was written in 2010, when members of Congress were focused on gaining political cover from the fallout of the financial problems of American International Group. Collins has since made clear to Fed officials that her intent was not to subject insurers to strict bank capital standards if the Fed was their prudential regulator.

See also: Sen. Collins says Dodd-Frank amendment should lighten up on insurers

According to Washington Analysis and FBR Capital Research analysts, she is expected to reiterate that position in testimony before the panel today. She is anticipated to testify that her amendment should not be used to apply bank-centric capital rules on insurance companies,” FRB Capital analysts said.

“In our opinion, there is little to no support in Congress, or among regulators, for subjecting insurers to bank-like capital rules,” said Ryan Schoen of Washington Analysis.

Schoen said that he believes regulators are unlikely to unveil any new insurance rules anytime soon, particularly as momentum builds in Congress to carve out insurers from Dodd-Frank capital requirements. Besides AIG, MetLife and Pru, several large property and casualty insurers, including State Farm and USAA, maintain savings and loans that are subject to Federal Reserve oversight as their consolidated regulator. 

The hearing is being overseen by Sen. Sherrod Brown, D-Ohio, who FBR analysts characterize as supportive of the insurance industry’s position and has introduced legislation to clarify the intent of the Collins Amendment.

“We expect nearly unanimous support for a tailored approach for insurance companies from the members of the Senate Banking Subcommittee,” FBR analysts said in an investor’s note.

Schoen added that in his view, the Fed has no desire to create inappropriate capital standards for insurers or any other nonbank entity, with officials repeatedly stating their intentions to tailor capital rules for insurers that take into consideration business model differences with banks. 

“However, we do not see any near-term resolution to the current stand-off within the Fed between the General Counsel’s office, led by Scott Alvarez, and policy staff regarding the extent of flexibility available to craft nonbank-centric rules under Dodd-Frank,” Schoen said.

Schoen said Washington Analysis’ impression is that the staff is set against creating bank-centric rules, “but the General Counsel’s office feels legally bound by the Collins Amendment.”

“We do not see this conflict resolving itself quickly, nor do we see insurance capital standards being released until it is resolved,” Schoen said.

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