WASHINGTON BUREAU — Insurance and reinsurance trade groups are asking the U.S. Treasury Department to get its act together before it tries to impose federal oversight on non-bank financial institutions deemed to be systemically risky.
Representatives from three groups — Julie Spiezio of the American Council of Life Insurers, Washington; J. Stephen Zielezienski of the American Insurance Association, Washington; and Tracey Laws of the Reinsurance Association of America, Washington – have sent a letter to the Treasury Department asking officials there to develop organize the Federal Insurance Office (FIO) and set clear 
standards before trying to classify non-bank institutions as posing a risk to the financial system.
The groups were writing about Treasury Department efforts to implement the systemic provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act gives a new Financial Stability Oversight Council (FSOC) at the Treasury Department the authority to work with the FIO to decide whether an insurer or other nonbank institution ought to be supervised by the Federal Deposit Insurance Corp. (FDIC).
If state insurance regulators failed to deal with problems at a troubled insurer promptly, the FDIC could use the insurer's home state laws to oversee resolution of the insurer's problems.
The Obama administration is supposed to appoint an independent member with insurance expertise to the FSOC, and the FIO director is also supposed to serve on the FSOC.
The Obama administration has not nominated an independent member or an FIO director.
Regulators should wait until the independent member is confirmed by the Senate and the FIO director has been hired by the Treasury Department before classifying any insurers as systemically risky, the insurance groups say in their letter.
The FSOC also should delay any action involving insurers until the FSOC has
proposed qualitative and quantitative standards for assessing insurers and has given the insurance industry and the public time to comment on the standards, the groups say.
"Ensuring that the appropriate insurance expertise is in place to inform the rulemaking and providing a transparent process that allows for public comments on the quantitative and qualitative standards that will be applied by the FSOC are necessary components to the successful implementation of these critical provisions of the Dodd-Frank Act," the groups say.
The FSOC put out a request for comments in October 2010, and insurance groups provided extensive comments, but "nothing in the actual language of the [systemic risk] proposed rule provides nonbank financial companies with any guidance as to the standards that the FSOC intends to apply in carrying out its functions to determine whether or not to subject a financial company to the board's supervision and to enhanced prudential standards," the insurance groups say.
The FSOC's failure to provide clear standards "is particularly troubling" in view of the statement that it expects to begin assessing the systemic importance of nonbank financial companies under the proposed framework shortly after adopting a final rule, the groups say.
"It is difficult to provide comprehensive comments on the FSOC's proposed rule without having the opportunity to review and comment on the metrics the FSOC states it will rely upon, as well as the conceptual foundations that underlay its judgment," the groups say. "We do not believe that the insurance members on the FSOC that are awaiting appointment should take a back seat to members who have already been designated. Accordingly, we strongly believe that it would be contrary to congressional intent and do a disservice to the FSOC and to the insurance industry for the FSOC to proceed without the full complement of members who are able to provide critical input to the FSOC and participate in the FSOC's important decisions that will affect the insurance industry long into the future."
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