The American Council of Life Insurers is hoping the new Congress will take a fresh look at how federal regulators decide which companies are central enough to pose a potential threat to the financial system.
The Washington-based insurer group on Tuesday repeated its opposition to the Financial Stability Oversight Council’s process for designating “systemically important financial institutions,” or SIFIs, in a statement submitted to the House Financial Services Committee’s Subcommittee on Oversight & Investigation.
The subcommittee held a hearing in Washington on the section of the Dodd-Frank Wall Street Reform and Consumer Protection Act that governs the SIFI designation process. The process is supposed to give FSOC the ability to impose extra oversight over companies that are so important to the economy that their financial problems could threaten the stability of the economy as a whole.
The ACLI praised the SIFI process provisions on the Financial Choice Act, a bill Rep. Jeb Hensarling, R-Texas, the House Financial Services chairman, introduced in the previous Congress. The bill would repeal the FSOC’s ability to identify life insurers as SIFIs. Hensarling has said he will reintroduce the bill soon.
The methods FSOC uses to choose SIFIs is unfair, and the council has failed to acknowledge that state insurance regulators already have a long and successful track record of protecting life insurer solvency, the ACLI said in the statement.
The ACLI added that FSOC lacks adequate state insurance regulator representation and fails to understand how the structure of life insurance products limits the possibility of the kind of “run on the bank” that might affect depository institutions.
Insurers argue that, although an annuity or life policy might have a cash value, contract provisions such as surrender charges sharply limit large number of holders’ ability to make quick withdrawals.