Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

Congressional Hearing on Capital Requirements for Insurers Subject to Federal Reserve Regulation

On March 11, 2014, the Subcommittee on Financial Institutions and Consumer Protection of the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on "Finding the Right Capital Regulations for Insurers." Testimony was provided by two panels. Senator Susan Collins (R-ME) was the only witness on the first panel. The second panel consisted of:

  • Michael W. Mahaffey, Chief of Risk Officer, Nationwide Insurance
  • Virginia M. Wilson, Chief Financial Officer, TIAA-CREF
  • H. Rodgin Cohen, Sullivan & Cromwell LLP
  • Aaron Klein, Director Financial Regulatory Reform Initiative, Bipartisan Policy Center
  • Daniel Schwarcz, Associate Professor, University of Minnesota Law School

Section 171 of the Dodd-Frank Act, commonly referred to as the Collins Amendment, states that the Federal Reserve should establish consolidated minimum risk based leverage and capital requirements for companies subject to its supervision. The Federal Reserve has stated that it interprets this language as potentially requiring insurers under its supervision to be subject to the same capital framework as banks.

Janet Yellen, Chairperson of the Board of Governors of the Federal Reserve System, testified in a separate hearing before the House Financial Services Committee that the Federal Reserve is " craft a set of capital and liquidity standards that will be tailored to appropriate risk profiles of the insurance companies," but it is constrained by the language in the Collins Amendment.

As background, under the Dodd-Frank Act, there are two groups of insurers subject to Federal Reserve supervision:

  • Insurance groups that own depository institutions (such as a thrift); and
  • Insurance groups that are designated by the Financial Stability Oversight Council (FSOC) as systemically important financial institutions (SIFI).

At the outset of the hearing, Senator Sherrod Brown (D-OH) explained that there is "broad bipartisan agreement" that insurance is different from banking and the Federal Reserve should not apply banking capital standards - including Basel III - to insurers. According to Brown, many senators disagree with the Federal Reserve's interpretation of the Collins Amendment, and instead believe that "Dodd-Frank gives regulators the flexibility to treat insurance differently."

Senator Collins explained that the purpose of Section 171 was to require "large financial holding companies to maintain a level of capital at least as high as that required for our nation's community banks, equalizing their minimum capital requirements, and eliminating the incentive for banks to become too big to fail." She also stated that the amendment allows federal regulators "to take into account the distinctions between banking and insurance, and the implications of those distinctions for capital adequacy."

Two bills are before the Senate that would clarify the Federal Reserve's discretion in implementing capital standards for Insurance - S. 2102 and S. 1369.

Additional Topics Covered at the Hearing

  • Concern that the Collins Amendment will allow federal regulators to supplant state solvency regulations of insurers that own thrifts
  • Concern that the Financial Stability Board might attempt to impose "bank-centric" capital requirements on U.S. insurers
  • Support for legislation clarifying that the Federal Insurance Office, not the Federal Reserve, represents the U.S. on insurance matters at the International Association of Insurance Supervisors
  • Support for the creation of an optional federal charter for U.S. insurers
  • Whether insurance creates systemic risk
  • The potential impact of Basel III and other banking regulations on insurers​

Congressional Hearing on Data Security

On March 5, 2014, the Subcommittee on Financial Institutions and Consumer Credit of the U.S. House Financial Services Committee held a hearing on "Data Security: Examining Efforts to Protect Americans' Financial Information."

The first panel consisted of:

  • William Noonan, Deputy Special Agent in Charge, Criminal Investigation Division, Cyber Operations, United States Secret Service
  • Larry Zelvin, Director, National Cybersecurity and Communications Integration Center, U.S. Department of Homeland Security

The second panel included:

  • Troy Leach, Chief Technology Officer, PCI Security Standards Council
  • Greg Garcia, Advisor, Financial Services Information Sharing and Analysis Center
  • David Fortney, Senior Vice President, Product Management and Development, The Clearing House Payments Company
  • Edmund Mierzwinski, Consumer Program Director, U.S. Public Interest Research Group

Several members of Congress asked whether there should be uniform federal standards or requirements to address cyber data breaches. Noonan and Zelvin explained that they would support the creation of national standards and/or legislation requiring that law enforcement and private individuals be notified regarding cyber data breaches. They went on to state that, currently, companies can decide whether to notify law enforcement or disclose information about breaches based "risk management" considerations rather than "what is best for the victim." There was also a discussion regarding the need for legal liability protections for companies that share breach information with government agencies and law enforcement.