NU Online News Service, Nov. 11, 12:52 p.m.EST

WASHINGTON—A House subcommittee will hold a hearing Wednesdayand the main subject will be three pieces of legislation sought bystate regulators seeking to severely roll back federal authority tooversee insurance companies gained in the 2010 Dodd-Frank financialservices reform law.

The House Financial Services Committee is not expected toannounce until Monday at the earliest that its Housing andCommunity Opportunity Subcommittee Hearing will hold a hearing onthe insurance oversight-related proposals.

Committee officials were not available to comment because theoffice was closed for Veteran's Day.

The hearing will deal with three draft bills crafted byofficials of the Property Casualty Insurers Association of Americaand officials with the National Association if InsuranceCommissioners.

One would revoke the authority of the Federal Insurance Officeand the Office of Financial Research within the Treasury tosubpoena information from insurance companies.

The second would “explicitly and entirely” exclude insurancecompanies, including mutual insurance holding companies, from theFederal Deposit Insurance Corporation's (FDIC) “orderly liquidationauthority” for troubled large non-banks.

Moreover, the provision would limit the ability of federalregulators to ask large insurers to pay for the failure of a“too-big-to-fail” institution that is being liquidated.

It would do so by prohibiting the FDIC from counting insuranceassets, liabilities, or revenues in its assessments on financialfirms to pay for shortfalls when the assets of a failed firm areinsufficient to pay for the failed firm's resolution under theFDIC's “orderly liquidation authority.”

Proposed legislation would also preclude the Federal Reservefrom establishing higher prudential financial standards to troubledinsurance companies it would oversee as ordered by the FinancialStability Oversight Council (FSOC).

Specifically, capital requirements, risk-based capitalrequirements and accounting standards on insurers overseen by theFed as systemically significant could not be required to havehigher capital requirements than those imposed by stateregulators.

Testifying at the hearing on behalf of the NAIC will be JosephTorti, III, head of the Division of Insurance in Rhode Island;Michael Lanza, executive vice president of Selective InsuranceGroup on behalf of the PCI; and Daniel Schwarcz, associateprofessor of law at the University of Minnesota and an NAICconsumer representative.

The Fed and the FDIC turned down invitations to send witnessesto the hearing. The Treasury Department, which houses the FSOC, theFIO and the OFR, were not asked to send witnesses.

These issues were not brought up when the full committee heardtestimony several weeks ago from Michael McRaith, FIO director.

At the moment McRaith is in the process of hiring people withinsurance accounting backgrounds, including someone who formerlyworked for the Florida Office of Insurance, to work at the FIO,according to sources.

One industry lawyer, who declined to be identified by name, saidthe legislation would have the potential for barring the Fed fromenforcing provisions of the Volcker Rule on insurers. These wouldinclude ensuring that insurers complied with exemption from theVolcker rule for insurers who followed state laws regardingseparate account and general account activity.

The source also voiced concern that the accounting provisioncould intrude on the Securities and Exchange Commission's authorityto oversee insurance products deemed securities by the SupremeCourt, such as variable annuities. This lawyer indicated that itwas possible that the SEC's long-recognized authority to imposeaccounting rules and to exempt insurance company from federal ruleswould also be questioned by such laws.

According to several industry lawyers, the laws are being soughtby the NAIC to limit the intrusion of federal authorities toregulate insurers to the largest extent possible.

As to the subpoena power, House FSC staffers said that insurancecompanies have complained that this power “may result in overlyburdensome requests that will be costly to comply with and may alsobe duplicative of other data collection efforts already undertakenby state regulators and other federal agencies.”

It would require Treasury and Fed officials to obtaininformation about insurance companies through the insurancecompany's state regulator, another federal agency, or publicsource. The proposal also requires that these federal entities, aswell as state regulators, maintain the confidentiality of nonpublicdata obtained from or shared with other federal and stateregulators.

The second proposed law would also put state regulators, not theFDIC, in the driver's seat in winding down a troubled largeinsurance company.

State regulators would also have authority under the draft lawto deal with policyholders who are typically protected by astate-administered guaranty fund.

The proposal also prohibits the FDIC from obtaining a lien on aninsurance company's assets without the written consent of theinsurance company's state regulator.