Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor
The U.S. Treasury building in Washington. Credit: Nathan Howard/Bloomberg

Life Health > Annuities

Federal Risk Tracker Spooks Life Industry Analyst

By Allison Bell

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Congress created FSOC in an effort to prevent another Great Recession.
  • Life insurers fought off FSOC oversight and, in 2019, the agency agreed to rein in the way it monitors financial institutions other than banks.
  • Now, Peter Troisi says, FSOC wants to broaden its scope.

A credit analyst says one big, hard-to-predict threat facing U.S. life insurers could be an agency that’s supposed to reduce financial system risk: the Financial Stability Oversight Council.

Peter Troisi, Barclays’ senior credit analyst for high-grade U.S. banks and insurers, named FSOC as a possible source of “black swan” risk earlier this week during a panel discussion at an insurance conference in New York City organized by S&P Global Ratings.

In April, FSOC proposed reversing a decision it made in 2019 to narrow the scope of its efforts to monitor and supervise “systemically important financial institutions” other than banks, or SIFIs.

“We don’t know how it will go this time around,” Troisi said. “It seemed punitive last time. I think it is probably not on many people’s radar.”

What It Means

One possible threat to the issuers of your clients’ life insurance policies and annuities, and to their investment portfolios, could be the side effects of FSOC’s meltdown prevention activities.

FSOC Basics

Congress created FSOC in response to the 2007-2009 Great Recession.

Federal financial services regulators said at the time that they felt that they understood the problems at banks and in the securities industry but had a hard time tracking potential threats at financial institutions such as life insurance companies and nonbank consumer lending firms.

The chair of FSOC is the U.S. Treasury secretary. The other members are the heads of financial services regulatory agencies; a voting member with insurance expertise; the director of the Treasury’s Federal Insurance Office, who does not have a vote; and a representative from the National Association of Insurance Commissioners, who also does not have a vote.

Life Insurers and FSOC

Life insurers ended up seeing FSOC efforts to designate them as systemically important financial institutions as burdensome and a poor fit.

MetLife turned its individual life and annuity operations into a separate company, Brighthouse Financial, partly to escape SIFI designation. It and other insurers went to court to avoid SIFI designations, based partly on the argument that FSOC took an arbitrary and secretive approach to choosing SIFIs.

FSOC’s Scope

FSOC agreed in 2019 to narrow the scope of its SIFI oversight efforts, to defer to nonbanks’ primary regulators, when possible, and to try to limit itself to regulating concerning activities at nonbank financial institutions rather than making direct efforts to regulate specific companies.

Now, in the wake of a flurry of bank failures that occurred in March, FSOC wants to unchain its ability to take over nonbank financial institutions that look as if they could crash the economy, even before those companies’ primary regulators have had time to step in. The proposal does not specifically mention insurance companies.

FSOC last week signaled that the proposal has attracted a significant number of comments, by announcing that it would postpone the due date for comments on the proposal to July 28, from June 27.

The U.S. Treasury building in Washington. Credit: Nathan Howard/Bloomberg

Allison Bell

Think_Allison

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.