Bill Would Not Allow Thrifts to Siphon Losses from Insurance

WASHINGTON – Bipartisan legislation in the Senate and House would not allow the assets of parent insurance companies to be used to pay off an affiliated thrift’s failure or financial stress.

“It’s simply wrong to force average middle-class families to put their homeowner’s or life insurance policies at risk because some Wall Street firm made a bad bet,” said Rep. Bill Posey, R-Fla. He joined with Rep. Brad Sherman, D-Calif., both members of the House Financial Services Committee, to introduce the Policyholder Protection Act in the House.

“I strongly support this bipartisan, common-sense fix that needs to be made,” Sherman said. “It will ensure that those with insurance policies will not have the security of those policies undermined by a contingency they could not foresee.”

The bill clarifies that state insurance regulators have authority to "wall off" insurance companies that are organized as thrift holding companies from being held financially responsible for problems at the thrift.

The bill was introduced in the Senate by Sens. David Vitter, R-La., and Jon Tester, D-Mont. The bill was introduced at the request of the National Association of Insurance Commissioners (NAIC), according to Monica Lindeen, Montana commissioner of Securities and Insurance and NAIC president.

State regulators have long-standing authority under state law to wall off insurance company assets designated for the benefit of policyholders, according to a letter sent by the NAIC to the sponsors of the legislation.

The letter said these authorities also apply to insurers organized as bank holding companies under federal law, but the law governing savings and loan holding companies does not contain the same procedural protections.

“This bill will extend the policyholder protections in the Bank Holding Company Act and state law to Savings and Loan Holding Companies, thereby creating a level playing field and clarifying that the same set of rules applies across insurer organizational structures,” the letter said.

Second, the letter said that state insurance regulators have long-standing authorities to liquidate or rehabilitate troubled insurance companies. Under Title II of the Dodd-Frank Act, the FDIC has back-up authority to initiate liquidation proceedings in the event a state insurance regulator does not act, the letter said.

“In the unlikely event a systemic insurance legal entity requires resolution, this legislation clarifies state regulatory authorities to employ the most appropriate resolution strategy, liquidation or rehabilitation, to protect policyholders,” the NAIC letter said.

It also ensures that the options available to the FDIC with respect to its backup authority under Title II of the Dodd-Frank Act include the options that are available to state regulators, the letter said.

“Lastly, state insurance regulators have long-standing authority to protect policyholder assets from contagion emanating from an affiliate through their ability to review material transactions and to protect policyholders in resolution proceedings,” the letter said.

The letter said that, “In the event an affiliate of an insurer is systemic and requires resolution, this legislation ensures that assets meant to be available to policyholders will not be subject to liens in such proceedings unless insurance regulators are comfortable that the lien will not have adverse impacts on the company’s policyholders and its ability to pay claims.”

The bill is the Policyholder Protection Act of 2015, S. 798/ H.R. 1478.

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].