ACLI Asks FSOC to Explain Itself

In the Feb. 9 joint letter, the ACLI and the other groups asked the FSOC to postpone efforts to classify insurers as systemically risky until:

• The Senate has confirmed an independent member of the FSOC who has insurance expertise.
• The Treasury secretary has hired a director for the Federal Insurance Office.
• The FSOC has proposed qualitative and quantitative standards for evaluating insurers.
• The FSOC has given the insurance industry and the public a chance to comment on the standards for evaluating insurers.

In the new letter, ACLI officials say they want "to state in the strongest possible terms our concerns with lack of substance of this proposed rule."

The proposed regulation "does little more than restate provisions already contained" within the law itself," ACLI officials say.

"As a result, the proposed rule effectively provides no information or guidance concerning the actual criteria the FSOC plans to use in judging whether an entity will be subject" to heightened supervision, ACLI officials say.

Instead, "the minimal new regulatory content presented" in the proposed rule repeats material contained in the provisions of the Dodd-Frank Act itself, ACLI officials say.

"We believe that, before the FSOC begins designating entities as directed under [the act,] it is essential that the proposed rule be amended to clearly disclose to

interested parties the actual measures and other criteria that regulators will apply during the process of making a [Section] 113 determination, and that the public be afforded the opportunity to comment on these measures," ACLI officials say.

"We believe it is an inappropriate use of regulatory discretion to establish a regulatory framework outside of the rule itself, and we strongly urge you to reconsider this approach prior to finalizing" the regulation, ACLI officials say.

ACLI officials say the "traditional core activities of a life insurance organization do not present systemic risk," but they acknowledge that, "during the financial crisis, several life insurers underwent periods of significant distress."

The problems that occurred during the recent crisis related primarily to non-core activities that can increase interconnectedness and liquidity risk, and, those activities "also often occur outside of the insurance regulatory structure," ACLI officials say. "The FSOC therefore needs the tools to assess the extent to which life insurance organizations are engaging in activities that may pose systemic risk."

But "there has been relatively little work to develop risk measures that work across different financial industries, especially compared to the cumulative work of decades focused on developing robust risk measures that work within industries," ACLI officials say. "Traditional bank-oriented metrics are not sufficient to capture the unique characteristics of the life insurance industry and the differences between life insurers and banks. Therefore, it is imperative that appropriate measures are adopted that incorporate and adjust for these differences."