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Insurance industry welcomes U.S. regulatory reform efforts

Systemic risk review part of provisions

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Insurer provisions of a wide-ranging proposal to reform the financial services regulatory process are drawing generally favorable reviews from property/casualty insurance industry observers.

Insurance comprises only a small portion of the Financial Regulatory Improvement Act of 2015, sponsored by Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee. The bill deals with matters extending from credit unions to transparency at the Federal Reserve.

The Senate Banking Committee on Thursday approved the bill, which would also change the Gramm-Leach-Bliley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The bill also seeks to promote greater transparency in the way the Financial Stability Oversight Council decides whether nonbank financial institutions, including insurers, are determined to be systemically important financial institutions and thus subject to enhanced regulation by the Fed.

Thus far, three insurers — American International Group Inc., MetLife Inc. and Prudential Financial Inc. — have been designated SIFIs. MetLife is challenging the designation in court, and insurers have argued since Dodd-Frank established the SIFI designation that they do not present systemic risk to the economy.

In addition to the section on the Financial Stability Oversight Council, three sections of the Financial Regulatory Improvement Act would affect insurers if they become law.

According to a summary prepared by the Senate Banking Committee, the first insurance section “sets forth the sense of Congress that the McCarran-Ferguson Act of 1945 remains the preferred approach to regulating the business of insurance.” That law made states the primary regulators of insurers.

A second section, the Policyholder Protection Act of 2015, would affect insurers that are part of an entity that contains savings and loan institutions subject to federal regulation. It would establish parity for savings and loan holding companies with current laws governing bank holding companies “to ensure that the same protections exist in both structures so that there are resources sufficient to pay policyholder claims.”

The third section, International Insurance Capital Standards Accountability, says the Fed, the Federal Insurance Office and state insurance regulators should develop consensus positions in international discussions on insurer capital standards and increase transparency in such talks. Among other things, it would establish an advisory committee on insurance matters at the Fed.

Capitol Hill representatives of property/casualty insurance trade groups generally welcomed the reforms.

“The insurance provision reflects bipartisan agreement on opening international regulatory discussions to congressional oversight and public participation and requires federal agencies to reach a consensus with the state regulators who, after all, are the primary regulators,” said David Snyder, a vice president in the Washington office of the Property Casualty Insurers Association of America.

There also is a consensus that the FSOC's process “needs to be improved by specifically providing for a greater voice for knowledgeable insurance regulators when making decisions relating to insurance companies,” Mr. Snyder said. “It is critically important that Congress be on the playing field and revisit problems and issues that have emerged.”

The American Insurance Association also praised the inclusion of policyholder protections.

Tom Santos, an AIA vice president, said in an email that the Washington-based group “has long held that insurance company assets should be available to pay claims.” The policyholder provision does so “by ensuring that the implementation of Dodd-Frank aligns with the insurance business model and that insurance company assets will be walled off for the protection of policyholders and to pay claims.”

Jimi Grande, senior vice president in the National Association of Mutual Insurance Companies' Washington office, called the Shelby bill “very significant.” He said it reaffirms the state-based system of insurance regulation, would ensure that policyholders and regulators play a role in any liquidation, and bring “much-needed transparency to international standards setting.”

“The Shelby bill creates a vehicle to have an important conversation and while it includes many areas, we're glad that insurance is included,” he said.

Joel Wood, senior vice president of the Council of Insurance Agents and Brokers in Washington, said in an email that he believes there is industry consensus on the provisions dealing with SIFI designations, adding “hopefully there will be unity on the (Senate Banking) committee as well.”

He was slightly more skeptical about other provisions.

“As for the "sense of the Congress' resolution and language about international coordination, I suppose it does no harm,” Mr. Wood said. But Congress established the Federal Insurance Office to speak with one voice at international negotiations, he said.

“Certainly, we live under a state-based regulatory regime, but we believe (FIO) Director (Michael) McRaith has and is doing an excellent job in representing our country. We don't need to move back to a situation where 50-plus state regulators are cramming into a room where every other government is represented by one,” Mr. Wood said.