Property/casualty insurers dodged new federal regulation, upon confirming last month they would be exempted from the long-awaited implementation of the Volcker Rule, a key part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The final rules implementing section 619 of the Dodd-Frank financial reform law, known as the Volcker Rule, were issued Dec. 10 by five federal agencies: the Board of Governors of the Federal Reserve System; the Office of the Comptroller of the Currency; the Federal Deposit Insurance Corp.; the Securities and Exchange Commission; and the Commodity Futures Trading Commission.
The Federal Reserve Board announced that banking organizations covered by section 619 will be required to be fully compliant by July 21, 2015.
But thanks to the efforts of the Property Casualty Insurers Association of America, P/C insurers will continue to be allowed to invest in “covered funds,” which according to the final regulations include hedge funds and private equity funds, as well as certain foreign funds and commodity pools.
The original Volcker rule exempted insurance companies from the proprietary trading ban, but not from investing in covered funds, said Jim Olsen, vice president of accounting and investment policy for the Property Casualty Insurers Association of America.
“We submitted a comment letter when the original regulations came out saying we didn't think it was appropriate for insurance companies to be covered by Volcker limitations and asked for an exemption on covered funds,” Mr. Olsen said. The original regulations proposed in 2011 and 2012 generated more than 18,000 such comment letters, according to a recent SEC statement.
“The (commercial insurance) industry got the result it desired; it was a good result for us,” Mr. Olsen said. “We don't see it as controversial for the P/C industry. As far as we are concerned, there is no significant impact on the P/C industry.”
Other insurance industry trade groups expressed similar sentiment.
The Volcker rule is “really not a P/C issue,” said J. Stephen Zielezienski, the general counsel at the American Insurance Association.
“The Volcker rule issued Dec. 10 reflects a recognition that the investment activities of life insurance companies are central to the overall insurance business model,'' according to a statement from the American Council of Life Insurers.
“It will ensure that all life insurers can continue to make investments and investment decisions permitted by and in accordance with state insurance investment laws.”
The rule, named after former Federal Reserve Chairman Paul Volcker, will be phased in according to institution size. The final rule becomes effective April 1, 2014, and the Federal Reserve Board has extended the conformance period until July 21, 2015.
Beginning June 30, 2014, banking entities with $50 billion or more in consolidated trading assets and liabilities will be required to report quantitative measurements.
Banking entities with at least $25 billion, but less than $50 billion, in consolidated trading assets and liabilities will become subject to this requirement on April 30, 2016.
Those with at least $10 billion, but less than $25 billion, in consolidated trading assets and liabilities will become subject to the requirement on Dec. 31, 2016.
The agencies will review the data collected prior to Sept. 30, 2015, and revise the collection requirement as appropriate.