NU Online News Service, Feb. 25, 2:27 p.m. EST
The Property Casualty Insurers Association of America is urging the Financial Stability Oversight Council to establish precise methodology for evaluating whether an insurer is systemically risky and should be subjected to federal oversight.
In a comment letter submitted to the FSOC today, PCI officials said it "is critical" that an appropriate methodology be established for measuring systemic risk.
That methodology should take into account "the varying impacts on systemic risk that different risk factors will have, particularly across different sectors of the financial industry," the letter said.
The letter was written in response to the FSOC's request for comments on its proposed regulation dealing with its authority to require supervision and regulation of certain non-bank financial companies.
The FSOC is establishing the process it will use to determine whether a financial institution is systemically risky under authority of the Dodd-Frank financial services reform law.
The letter was signed by Robert Woody, PCI senior counsel, policy.
The letter cites language in the proposed regulation that says the FSOC will use "its judgment, informed by the six categories for determining risk" as noted in the law establishing its authority to regulate non-banks as systemically risky, and voices concern.
"by failing to provide even a broad framework for how systemic risk will be measured with respect to different activities and firms, the FSOC apparently seeks to make these determinations entirely on an ad hoc basis or least without disclosing the methodology and metrics to be used and without receiving any public comment on them," the letter said.
"The FSOC would be better prepared to deal with systemic threats if it were to develop the needed metrics and methodologies in advance to the greatest degree possible, and to benefit from public input on them," the letter said.
The letter also states, "one of the most critical concerns" PCI has about the lack of appropriate methodology "is the potential it creates" for the FSOC to place undue emphasis on size in making systemic risk determinations.
The letter reiterates the PCI's concern over the lack of insurance representation on the FSOC, and reemphasizes the PCI's view that "property casualty insures are generally not systemically risky."
It says that application of all the factors cited by the PCI in an earlier comment letter on the factors that should go into determining whether an institution is systemically risky, "will inevitably lead to the conclusion that the insurance industry is highly regulated and does not engage in activities or otherwise have characteristics that are indicative of systemic risk."
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