The House passed legislation late Tuesday under accelerated procedures that would clarify that the Federal Reserve Board can apply insurance-based capital standards to the insurance portion of any insurance holding company it oversees.
However, the bill, the “Insurance Capital Standards Clarification Act of 2014,” H.R. 5461, carries baggage through other provisions unlikely to be accepted by the Senate, thereby virtually certainly delaying final legislative action on the clarification until Congress returns to work in a so-called “lame duck” session after the mid-term elections.
The Fed has made clear that it will honor congressional intent and likely delay any substantive oversight of insurers subject to its jurisdiction until such legislation is enacted, likely in November or December.
The American Council of Life Insurers voiced support for the House action and urged immediate passage.
The ACLI said in a statement that the House bill gives the Fed the ability to develop insurance-specific standards for insurance companies — not bank-centric standards — as it moves forward. “ACLI believes consumers, life insurance companies, the economy and the nation overall benefit from a strong insurance regulatory system,” the statement said. “But, rules governing life insurers on all issues must be appropriate for life insurers,” the statement said.
The ACLI statement noted that there is broad agreement on this position. “The Obama administration, Democrats and Republicans in the House and the Senate, state and federal regulators and private industry all agree that life insurers should not be subject to capital standards more suited for banking,” the statement said.
The Senate measure S. 2270, “the Insurance Capital Standards Clarification Act of 2014,” is simple legislation, merely clarifying that statutory accounting principles can be used by the Fed in overseeing insurance companies.
That bill would “revise” Sec. 171, the so-called “Collins Amendment,” a provision of the Dodd-Frank financial services reform law. The Fed says its lawyers interpret the “Collins Amendment” to “require” the Federal Reserve to apply bank capital rules to insurance companies it supervises. The Senate bill was passed as a separate through unanimous consent June 3.
Final passage almost certainly must wait until after the November mid-terms because, “This bill attaches three divisive measures that make substantive changes to the Dodd-Frank Wall Street Reform law to a bipartisan, Senate-passed measure that makes technical changes to the law,” said Rep. Maxine Waters, D-Calif., ranking minority member of the Financial Services Committee (FSC).
According to analysts at the Washington Analysis, a buy-side securities analytical firm, unlike the Senate measure, the controversial provisions in the House bill would expand exemptions for bank ownership of collateralized loan obligations (CLOs) under the Volcker Rule, as well as marginally expand the definition of a Qualified Mortgage (QM).
“These additional provisions could jeopardize the ability of the Senate to approve the package with unanimous consent (a requirement if the bill is to pass into law this week), as it only takes a single Senator to oppose the measure and derail fast-track approval,” the analysts said.
The measure was sponsored by Reps. Andy Barr, R-Ken., Gary Miller, R-Calif., Bill Huizenga, R-Mich., and David Scott, D-Ga.
Waters called the decision of the House Republican leadership to merge the three bills and present them to the House under expedited procedures during a getaway week, an “abuse” of the suspension procedures.
“It’s clear that this is an exercise in political theater,” Waters said. “It is well-known – and widely-reported – that Republican leadership has privately told insurance industry stakeholders they will bring up a ‘clean’ insurance capital standards bill after the mid-term elections,” she added.
“It simply shows the disgraceful nature of this debate – and the partisan, dilatory tactics – that create more distrust in the political process,” Waters said.
She noted that, “Rather than do what is right and enact legislation that everyone has agreed on, the Chairman has decided to create a fight where there was none. Make no mistake – but for the chairman’s intransigence (Rep. Jeb Hensarling, R-Tex., chairman of the FSC), the insurance capital fix bill could be on the President’s desk for signature tomorrow.”
The provision at issue in the DFA was sponsored by Sen. Susan Collins, R-Maine, as Congress acted to strengthen insurance supervision in the wake of the catastrophic failure of American International Group (AIG).
AIG’s consolidated regulator, the Office of Thrift Supervision, was cited as responsible for overseeing the holding company subsidiary of AIG that speculated in issuing credit default swaps that sent the company into turmoil. The CDS was issued through AIG’s Financial Products unit.
It would impact insurers such as American International Group and Prudential Financial that have been designated as systemically significant financial institutions (SIFI), and perhaps MetLife, which has been preliminarily designated a SIFI.
It would also impact insurers such as State Farm and USAA which the Fed oversees as their consolidated regulator because they operate savings and loan holding companies (SLCC). The Fed has never disclosed a list of insurers it oversees as SLCCs.