Insurance Capital Standards Clarification Act of 2014by Senator Sherrod Brown
Posted on 2014-12-10
BROWN. I and other original cosponsors and strong supporters of
S. 2270 have, like you, been disappointed by the regulators' failure to
recognize that they have the authority to implement the Collins
amendment as it applies to insurers in a manner that tailors the
capital requirements for insurers to reflect the substantial
differences between insurers and depository institutions. We continue
to believe that the regulators could solve this problem using their
existing authority. This legislation shows that there is strong
bipartisan support for addressing this issue. As you know, 31 of your
colleagues and I cosponsored the bill, and the legislation passed the
Senate with unanimous support in early June.
S. 2270 is narrowly crafted to only address this issue as it relates to insurance companies and insurance savings and loan holding companies. If you are a bank, or another entity that owns a bank, you will be subject to the full force of the Collins amendment for your banking activities. At the same time, if you are a financial organization engaged in insurance which is also engaged in bank activities, including derivatives market making, those activities would be subject to the Collins amendment.
To accomplish the goal of directing the Federal Reserve to tailor rules for insurance, our legislation permits the Federal Reserve to create a non-Basel III regime for the insurance operations of supervised entities. The legislation allows the Fed to work with State insurance regulators to develop appropriate insurance-based capital standards for insurance activities.
Mr. JOHANNS. I am an original cosponsor of this legislation and appreciate your long-standing partnership on this issue. The bill clarifies that, in establishing the minimum leverage capital and risk- based capital standards under section 171, the Federal Reserve Board is not required to include activities or companies that are engaged in the business of insurance and are subject to State insurance regulation, including State insurance capital requirements. Similarly, regulated foreign affiliates or subsidiaries engaged in the business of insurance and subject to foreign insurance regulation and foreign insurance capital requirements that have not been deemed to be inadequate also may be excluded from section 171 capital standards. We believe it is worth noting that the Government Accountability Office found that the State risk-based capital rules performed well during the financial crisis.
The bill allows the insurance capital requirements that have been effective to continue to determine the capital requirements for the activities of insurance companies and groups that are supervised by the Federal Reserve Board. Furthermore, activities of a holding company supervised by the Federal Reserve Board that are not the business of insurance would remain subject to the capital standards under section 171. In determining insurance versus non-insurance activities of a supervised entity, the legislation provides regulators with the flexibility to tailor the rules for certain affiliates or subsidiaries of insurance companies that are necessary to the business of insurance, including, for example, affiliates or subsidiaries that support insurance company general and separate accounts.
Our legislation defines ``business of insurance'' by reference to section 1002 of the Dodd-Frank Act, and under this definition the business of insurance means ``the writing of insurance or the reinsuring of risks by an insurer, including all acts necessary to such writing or reinsuring and the activities relating to the writing of insurance or the reinsuring of risks conducted by persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons.'' The reference to this definition of the ``business of insurance'' will help ensure that insurance activities of federally supervised companies are subject to tailored capital rules, whether those activities are undertaken by the insurance companies themselves or by their affiliates or subsidiaries on their behalf.