As discussed in a previous Kramer Levin client alert,1  Federal legislators and regulators have been  seeking to clarify ambiguities in the Dodd-Frank Wall Street Reform and Consumer Protection Act2 regarding the capital requirements that apply to certain insurance companies.

On April 29, 2014, Senators Susan Collins (R-Me.), Sherrod Brown (D-Oh.) and Mike Johanns (R-Neb.)  introduced the bipartisan Insurance Capital Standards Clarification Act of 2014 (S. 2270), which would  allow Federal banking regulators to relieve certain insurers from more onerous bank-style capital  requirements.3 An identical House bill (H.R. 4510) was introduced the same day by Representatives  Gary G. Miller (R-Calif.) and Carolyn McCarthy (D-NY).4 Both bills are substantively similar to S. 2102,  a bill introduced by Senator Collins in March 20145 and discussed in the earlier client alert,6 albeit with  a few distinctions as discussed below.

By way of background, Dodd-Frank authorizes the Federal government to designate certain non-bank  financial firms (including insurers) as so-called “systemically important financial institutions,” or “SIFIs.”  SIFIs are subject to heightened financial regulation by the Board of Governors of the Federal Reserve.  Section 171 of Dodd-Frank (codified at 12 U.S.C. 5371), known as the Collins Amendment after its  drafter Senator Collins, specified further that SIFIs as well as holding companies of depository  institutions (including insurers and their affiliates) must be subject to capital standards that are “not less  than” those applicable to the depository institutions themselves. Under one reading of Section 171,  such holding companies and SIFIs would be required, in effect, to hold capital as though they were  banks. Although other provisions of Dodd-Frank (most notably Section 165) allow the Fed to distinguish  between insurers and banks more generally, Section 171 introduced the possibility of insurers being  subjected to inappropriate capital standards. 

Like S. 2102 before them, the two recently introduced bills would amend Section 171 by providing that,  in establishing capital standards for depository institution holding companies and SIFIs, bank regulators  “shall not be required to include” an insurer subject to insurance regulation.7 Insurers may specifically  be excluded even for purposes of determining consolidation in the first place.

H.R. 4510 and S. 2270 differ from the earlier bill mainly in their new provisions concerning accounting  requirements and a clarification on foreign insurers. Specifically, under the new bills, a depositary  institutions holding company or SIFI that is regulated by a state insurance regulator and files its holding  company financial statements using only state-based statutory accounting principles is not required to  prepare such financial statements in accordance with Generally Accepted Accounting Principles.  Moreover, the new bills clarify that in the case of a regulated foreign affiliate of an insurer, activities  falling outside foreign capital requirements would be regarded as outside the insurer’s “capacity as a  regulated insurance entity.”