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Moody's: Insurer SIFIs benefit from Collins clarification

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U.S. Sen. Susan Collins, R-Maine, attempted to clarify her amendment to the Dodd-Frank Act last week through statements to a Senate committee and the introduction of legislation, moves that a ratings agency says is credit positive for systemically important insurers.

The “Collins Amendment,” or Section 171 of the Dodd-Frank Act, “requires that the Fed impose minimum capital and leverage requirements on all non-bank systemically important financial institutions (SIFIs),” Moody’s Investors Service says in its Weekly Credit Outlook.

Collins told a Senate Banking subcommittee last week that her amendment “allows the federal regulators to take into account the distinctions between banking and insurance, and the implications of those distinctions for capital adequacy.” 

Her legislation, S. 2102, clarifies the intent of her amendment and the application of leverage and risk-based capital requirements, Moody’s says. “For insurers subject to Federal Reserve oversight, a minimum capital standard that reflects the unique attributes of the insurance industry is credit positive,” the ratings agency states.

Moody’s contends that forcing “a strict bank-centric model upon insurers could result in capital requirements less conservative than intended because of misalignment with insurance-company risks.” 

The ratings agency adds that a bank-centric model could lead to “potentially onerous capital requirements” for insurers designated as systemically important financial institutions (SIFIs), which could in turn sour investors who find returns unattractive at those high capital levels.

Moody’s says the Fed was unable to take the differences between insurers and banks into account under Dodd-Frank, but Collins’ clarification should help in that regard.

“Tailoring non-bank SIFI regulations for insurance companies would maintain an insurer’s operational flexibility and provide for a level playing field,” says Moody’s. “Non-bank SIFIs under Fed regulation are less likely to take actions that would adversely affect their financial profile and are more likely to retain earnings and capital.”

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