ACLI to Fed: Keep Your Banking Hands Off Insurance SIFIs

WASHINGTON – Insurance companies subject to federal oversight under the Dodd-Frank Act are making it clear that they will seek to delay as long as possible the Federal Reserve Board (FRB) regulation of their activities.

In a letter to the Fed dated Feb. 2, the American Council of Life Insurers said the Fed should not treat insurers as banks and should be required to establish separate metrics for insurance companies designated as systemically important financial institutions (SIFI) or as thrift holding companies.

Moreover, they should also be given time once those metrics have been established to “build the systems and compliance infrastructure that would enable” them to comply, the ACLI says.

A similar letter was written by a group called the Insurance Coalition. Its members include MetLife, Prudential Life Insurance Company, New York Life Insurance Co., TIAA-CREF, Nationwide Mutual Insurance Co., Mutual of Omaha Insurance Co., and State Farm Mutual Insurance Co.

The take-off point was an order by the Fed sent to GE Capital, which has been designated as a non-bank SIFI, which would apply enhanced prudential standards and reporting requirements to GE Capital similar to those of banks.

The letter said that the ACLI recognizes that, in proposing to impose such standards on GECC, “the FRB relied on the substantial similarity of GECC's financial structure and risk profile to bank holding companies of comparable size.”

The ACLI, however, said that the business of life insurance, “is substantially different from banking,” and the standards for banks and bank holding companies should not be applied by the Fed to the insurance entities it oversees.

The letter notes that the recent enactment of legislation allowing the Fed to use insurance metrics in overseeing insurance companies, “is an emphatic statement that the innate differences between the banking and insurance industries should be appropriately addressed in regulations developed by the FRB.”

The letter adds that, it “is imperative that the FRB recognize these significant differences whenever it considers regulatory actions, similar to that being directed towards GECC in this proposed order, that will affect life insurance entitles under its jurisdiction.”

The ACLI therefore asks the Fed to develop any enhanced prudential standards to be imposed on insurance groups designated for supervision by the Fed “through a careful assessment of the insurance business model and with recognition that existing prudential standards developed for banking institutions are not a fit for insurance.”

It also asks that any prudential standards that are made generally applicable to designated insurance companies be done through formal notice and comment rule-making so that they “can be further tailored for specific businesses by order of the FRB if needed.”

The letters from both groups also notes that under the order to GE Capital, a compliance date of July 1st is established for many of the enhanced standards and reporting requirements, “leaving very little time for GECC to put in place the systems and procedures” needed to comply with the reporting requirements.

Because the industry is concerned that “such a short period of time” would not provide adequate opportunity for insurers “to build the new systems and infrastructure that the standards are likely to require.” As a result, the ACLI urged, “to develop reasonable transition timelines as newly developed standards are applied to insurance companies for the first time.”

The coalition letter, signed by Bridget Hagan, identified as its executive director, makes similar requests.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].