The insurance industry is asking the Obama Administration to slow down on rules for deciding whether insurers and other nonbank financial companies should be subject to extra scrutiny because they pose a systemic risk to the country’s financial stability.
The industry wants the Treasury Department to wait on finalizing rules until the voting insurance representative is in place on the Financial Stability Oversight Council (FSOC), which is in charge of the rules, and until the head of the new Federal Insurance Office is on the job.
Not waiting for these appointments would deprive the industry of input into the federal rulemaking, the industry says.
The American Council of Life Insurers, the American Insurance Association and the Reinsurance Association of America are among the groups requesting a delay in the FSOC’s rulemaking.
They also want the FSOC to provide more specifics on how proposed criteria would apply to insurers and then give the industry time to respond.
The Dodd-Frank Act authorizes the FSOC to determine that a U.S. or foreign nonbank financial company should be supervised by the Federal Reserve Board and be subject to enhanced oversight if it determines that material financial distress at the company, or the nature, scope, size, scale, concentration, interconnectedness or mix of its activities could pose a threat to the financial stability of the U.S.
The Dodd-Frank Act sets forth 10 specific factors for the FSOC to consider, including the extent of the company’s leverage, off-balance sheet exposures, transactions and relationships with other significant financial companies, and other risk-related factors.
The FSOC is supposed to have a voting member with insurance expertise appointed by the president but no nominee has been announced. This appointment requires Senate confirmation. Missouri Insurance Director John Huff has been designated as a nonvoting member of the FSOC by the state insurance commissioners to fill the other seat for insurance.
The director of the FIO is supposed to be appointed by the Treasury secretary but no appointment has been made to this post either.
“The importance of having Council members with insurance expertise participate in the Council’s deliberations during its formative period cannot be overstated,” the groups said in a letter to Treasury Secretary Timothy Geithner.
The letter said that insurance representatives should not have to “take a back seat” to members of the FSOC from other industries who have already been appointed.
The industry also wants more specificity about the proposed quantitative and qualitative standards FSOC has proposed for assessing nonbank institutions. The insurers say terms used in the FSOC proposal including “material financial distress,” “financial stability” and “highly interconnected” are not clearly defined.
The insurance groups asked the FSOC to delay its current rules and “initiate the process of developing meaningful standards that reflect the unique aspects of the insurance industry and seek public comment on those standards.”
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