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12 March 2014
Washington DC
Reporter Mark Dugdale

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NAIC wants Dodd-Frank clarifications

The US Senate Banking Committee must consider amendments to the US Dodd-Frank Act so that policyholders are not put at risk, according to the National Association of Insurance Commissioners (NAIC).

Officers of the NAIC, including association president and North Dakota insurance commissioner Adam Hamm, were signatories to a letter sent to the committee on 10 March, praising it for looking at Dodd-Frank, but warning that changes must be made.

Reforms outlined in Dodd-Frank, which was signed into law by US President Barack Obama in 2010 following the financial crisis of 2008, gave consolidated supervisory authority to the Federal Reserve over thrift holding companies and systemically important financial institutions engaged in insurance operations.

Large parts of Dodd-Frank have already been implemented, but the Senate’s banking committee is conducting a hearing, Finding the Right Capital Regulations for Insurers, to find out if amendments should be made to protect insurers.

“We have to be sure that the insurance assets don’t prop up banks to the detriment of policyholders,” commented Hamm.

“Consent of the appropriate state regulator should remain a requirement for any capital transfer with the potential to affect policyholder protections. Individuals rely on insurance to protect their homes, livelihood and retirement. It is our job as regulators to safeguard that investment.”

Senator Susan Collins, a former insurance regulator, authored a late amendment to Dodd-Frank, which was codified as Section 171.

Banking regulators were supposed implement provisions of Section 171 by January 2012.

But the Collins Amendment, as it is also known, needs to be clarified to prevent federal regulators from applying capital standards for banks to insurance entities that are already regulated by states, according to its author.

She told Senate’s banking committee during a Finding the Right Capital Regulations for Insurers hearing that her Dodd-Frank amendment was designed to address the “failure of these over-leveraged financial institutions [that] threatened to bring the American economy to its knees”.

“Section 171 is aimed at addressing the ‘too big to fail’ problem at the root of the 2008-2009 crisis by requiring large financial holding companies to maintain a level of capital at least as high as that required for our nation’s community banks, equalising their minimum capital requirements, and eliminating the incentive for banks to become ‘too big to fail’.”

But the Federal Reserve has frustrated Collins with its refusal to distinguish between insurance and banking when implementing Section 171.

“While the Federal Reserve has acknowledged the important distinctions between insurance and banking, it has repeatedly suggested that it lacks authority to take those distinctions into account when implementing the consolidated capital standards required by Section 171.”

“As I have already said, I do not agree that the Fed lacks this authority and find its disregard of my clear intent as the author of Section 171 to be frustrating, to say the least.”

Collins has recently introduced legislation that would clarify “the Federal Reserve’s authority to recognise the distinctions between insurance and banking”.

“My legislation would add language to Section 171 to clarify that, in establishing minimum capital requirements for holding companies on a consolidated basis, the Federal Reserve is not required to include insurers so long as the insurers are engaged in activities regulated as insurance at the state level.”

“My legislation also provides a mechanism for the Federal Reserve, acting in consultation with the appropriate state insurance authority, to provide similar treatment for foreign insurance entities within a U.S. holding company where that entity does not itself do business in the United States.”

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