Filed Under:Markets, Regulation/Legislation

FSR: FIO Should Coordinate Federal Insurance Activity to Avoid Onerous Demands

NU Online News Service, March , 3:24 a.m. EDT

The Financial Services Roundtable wants the Treasury Department to use the Federal Insurance Office to coordinate all federal-agency activities regarding insurance in order to ensure that onerous and duplicative federal intervention in the insurance business does not occur.

The FSR wrote a letter to Treasury secretary Timothy Geithner this week, which was obtained by NU Online News Service.

“Our hope is that the FIO will play a significant role, in concert with other insurance experts on the Financial Stability Oversight Council, in ensuring that any new regulation imposed on insurers is commensurate with the risk targeted for mitigation,” the letter says.

The letter was signed by Steve Bartlett, FSR CEO.

It was written after Geithner spoke at FSR’s mid-winter forum for members.

The letter was written just after the Federal Reserve Board decided after a stress test to bar MetLife from buying back stock or increasing its dividend.

MetLife was one of 19 large financial institutions to undergo a stress test.

In his letter,Bartlettsays the FIO and Treasury should help avoid the cost of any new federal or international regulation impacting insurance companies that is inconsistent with any reasonable risk presented by insurers or that imposes redundant regulation on matters already regulated by state-insurance departments or other agencies.”

Finally, FIO should help provide understanding as to the impact of the economic environment on insurers, as well as promote market access and a balanced international-regulatory architecture,Bartlettsays.

In its early stages, he says perhaps the most important role of the FIO, with the support of Treasury, will be to understand the impact of the Dodd-Frank Act on the industry. New regulations and requirements for some insurers—particularly those with insured depositories—must be reconciled with the realities of the insurance business.

“Specifically, insurers that own thrifts will now be subject to dual regulation by the Federal Reserve and the states, and we believe that the FIO should proactively assist these regulators in developing workable solutions, without imposing conflicting or duplicative requirements, as they fulfill their responsibilities,” according to the letter

More broadly, the letter says, “We recommend that the FIO serve as a resource and sounding board for any proposed federal statutes or rules that significantly affect the business of insurance.”

 

THE IMPACT OF METLIFE

Regarding MetLife, but without mentioning what happened by name, the FSR letter says, “We believe that the FIO can assist the members of the Financial Stability Oversight Council in evaluating the unique risk characteristics of insurance companies, which are very different than the risks associated with a bank-holding company.”

Regarding the actions of the Fed in designating insurers as systemically significant, the letter says, “The FIO and Treasury should assist the Federal Reserve in evaluating how these rules could impact the business model, capital structure and statutory-risk factors of insurance companies, in the event any insurance groups are designated pursuant to such rules.”

In the wake of the Fed action, Dave Jones,Californiainsurance commissioner, issued a statement reaffirming that MetLife’s life-insurance group “exceeds insurance-financial-solvency requirements.”

Jones says, “I believe the Federal Reserve's ‘stress test’ is directed primarily at non-insurer financial institutions and the non-insurance operations of institutions with insurance subsidiaries.”

He says the methodology utilized for analyzing and stress testing banks is not intended to measure insurance solvency as the business models are quite different.”

He adds, “While we are confident that Metropolitan Life Insurance Group is financially strong, we will continue to monitor its insurance operations and protect the interests of insurance consumers.”

At the same time, Aite Group research director Clark Troy says MetLife’s failure of the Federal Reserve Bank’s most recent stress test “points out the double-edged sword of the post Dodd-Frank regulatory environment.”

Aite is based in Boston and has offices in the U.S. and overseas.

Troysays, “MetLife is at pains to expedite the shedding of its bank unit to a division of GE in order to keep it from being designated a systemically important financial institution, or SIFI, which would make it subject to supervision by the Fed.”

Troysays some banks are headed in the opposite direction as they try to replace income lost to regulation during the crisis by bulking up their insurance businesses, as witnessed by BB&T’s recent acquisition of insurance brokerage Crump Group. 

Troysays there is “speculation” that Wells Fargo, BB&T’s primary bank competitor in the insurance brokerage space, may itself make a major insurance-brokerage acquisition.

“Which strategy will end up making sense is up for grabs,”Troysays. “The track record of large-scale bancassurance in theU.S.is not encouraging, though BB&T and Wells Fargo have done fine thus far with large brokerage operations.”

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