House Passes Law Proposing Different Capital Standards for Insurers

by Anthony Del Guercio on January 13, 2015

in Insurance & Reinsurance

US Capitol BuildingOn December 10, 2014, the United States House of Representatives passed bill S. 2270, a measure that seeks to ease capital and liquidity standards for insurers under the Dodd-Frank Act.

The House unanimously passed the bill, which hopes to give the Federal Reserve the flexibility it needs to set capital standards for insurance companies that are different from those set for traditional banks.  Specifically, the bill would ease a Dodd-Frank Act provision that imposes bank-like minimum capital standards and leverage standards on the insurance industry.  The industry believes that applying bank standards to insurers could make the financial system riskier, not safer, and simply does not work with the insurance business model.

Insurance companies, with the support of by Federal Reserve Chair Janet Yellen and Governor Daniel Tarullo, lobbied for these changes to the 2010 Dodd-Frank Act.

With the House’s approval of this measure, the insurance industry believes the Federal Reserve can now draft new rules applicable to the insurance industry that will preserve competition and ensure affordable access to financial security.

Those with particular concern are systemically important financial institutions (“SIFI”s), institutions which the Financial Stability Oversight Council has designated a having the potential to negatively affect the financial market.  Designation as a SIFI subjects an institution to higher scrutiny and the Federal Reserve’s capital rules.  Prudential is a designated SIFI, and MetLife Inc. is in the final stage of consideration for the designation.

The Senate unanimously approved S. 2270 in June 2014.  The bill will now wait for President Obama’s signature before it can be enacted into law.

PIB Law represents national banks, retailers, reinsurers, insurers, mortgage lenders and financial services companies from its offices in New Jersey, New York City, Philadelphia, Boston, San Antonio, and Chicago.  For more information on reinsurance and insurance issues, contact PIB Lawat 908-725-9700.

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