Insurers Appeal For Clarity In FSOC’s Systemic Risk Authority

NU Online News Service, Feb. 28, 2:50 p.m. EST

WASHINGTON—The American Insurance Association and a coalition representing seven property and casualty insurance companies are urging the Financial Stability Oversight Council to clarify the criteria it will use to determine its oversight authority.

The insurers sent comments to the FSOC in regards to the agency's request for establishing what objective criteria it will use in determining whether to designate non-bank financial companies (NBFCs) for prudential supervision by the Federal Reserve Board under Sec. 113 of the Dodd-Frank financial services reform law.

"Subjecting well-run and well-regulated insurance companies that present minimal risk to the financial system to Section 113 designation based on a flawed process could well result in many adverse consequences," the AIA said in its letter.

Consequences could include assessing "non-risky insurers" to bail out far more systemically risky institutions, the imposition of significant and unproductive new layers of financial regulation and associated supervisory compliance costs, and increased capital requirements that are tailored to bank holding companies, not insurance companies, the AIA letter said.

Moreover, "it could cause consumers and investors to alter their view of the company's financial condition and possibly result in harm to the company's reputation," the letter said.

The AIA letter calls for application of an "analytical framework" that is consistent with the provision of the Dodd-Frank law giving the FSOC authority to oversee insurers if they are seen as posing a potential risk to the system. The letter also calls for the FSOC to use an industry-specific approach in making its determinations.

The AIA letter was signed by J. Stephen Zielezienski, senior vice president and general counsel.

A separate letter written by the coalition of seven insurers contends that the "proposed regulation must provide clearer guidance to non-bank financial companies regarding the standards or methodology that the FSOC intends to use to make determinations under the proposed regulation."

The letter insists that the FSOC "must articulate the objective criteria it intends to use as a matter of public policy."

The letter also says the insurers believe a "convincing case was established that, unlike American International Group, the activities of traditional P&C insurers do not pose a threat to the financial stability of the United States."

"We believe that any reasonable system the FSOC may develop to apply the six categories of the analytical framework it discusses in the preamble to the proposed Regulation will prove this point," the letter states.

The Property and Casualty Insurers Coalition letter was sent by J. Paul Mattera, senior vice president and chief public affairs officer of Liberty Mutual Insurance Company, on behalf of Liberty Mutual, ACE, Allstate, CNA, Nationwide, State Farm and USAA.