Like the “Collins fix” signed into law by President Obama late last year, legislation now being considered by the Senate would signal potential relief for some insurers affected by Dodd-Frank and a more flexible approach on the part of the federal government to insurance matters.
The Financial Regulatory Improvement Act of 2015, reported out by the Senate Banking Committee in June, has drawn attention mostly for its provisions on the Federal Reserve, community banks and credit unions. However, it also contains several elements that could specifically affect insurance companies, as the Federal Reserve’s Board of Governors assesses how to apply Dodd-Frank’s capital and other regulatory requirements to insurance companies coming under its jurisdiction — generally insurers designated systemically important financial institutions, or SIFIs, and insurers owning depository institutions.
First among its insurance-specific provisions,the bill reaffirms Congress’ commitment to the McCarran-Ferguson Act, which codifies the primacy of the states in regulating the business of insurance.
Second, the legislation clarifies a key requirement relating to insurers that are savings and loan holding companies, affiliates of a depository institution or companies that control a depository institution. The bill limits circumstances under which such an insurer may be required to be a “source of strength” for the related financial institution, specifying that any such “source of strength” requirements will be subject to the constraints imposed by the Bank Holding Company Act. These constraints, generally, require the Federal Reserve’s Board of Governors to defer to state insurance regulators when seeking to require an insurer to provide support to the affiliated bank.
Third, it adds rehabilitation as an action that a state insurance regulator may take (in addition to liquidation) in order to preclude the Federal Deposit Insurance Corp. from exercising its backup authority to commence insolvency proceedings against an insurer that is a “covered financial company” under the Orderly Liquidation Authority provisions of Dodd-Frank.
Fourth, the legislation would prohibit the FDIC, where it is acting as receiver for an insurance company that is a “covered financial company,” from taking a lien on the insurer’s assets unless the state insurance regulator is notified, the lien is to secure repayment of funds extended to the company, and the lien would “not unduly impede or delay the liquidation or rehabilitation of the insurance company, or the recovery by its policyholders.”
Fifth, the bill states that the Federal Reserve’s Board of Governors and the director of the Federal Insurance Office should “achieve consensus positions” with state insurance regulators when negotiating before any international forum of financial regulators or supervisors considering insurance regulatory issues.
Sixth, it would establish an Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues at the Federal Reserve to advise on the application of these standards as well as other insurance-related matters.
Lastly, the legislation would institute annual reporting and mandatory testimony to Congress by the treasury secretary and the chairman of the Federal Reserve’s Board of Governors regarding developments at “international standard-setting regulatory or supervisory forums” as well as on the “impact on consumers and markets in the United States” prior to “the adoption of any key elements in any international insurance proposal or international insurance capital standard,” a reference to “ComFrame” and related initiatives of the International Association of Insurance Supervisors.