Regulators Promise Details On ‘SiFi’ Designation

Federal financial-services regulators have promised to propose soon a regulation that large property and casualty insurers hope will provide them a pathway to insignificance.

In a letter Aug. 10 to a member of Congress, the Treasury Department said the Financial Stability Oversight Council (FSOC) plans to re-propose—with “greater detail on the process and framework”—the principles it will use in designating non-bank financial companies as systemically significant.

The letter doesn't specify exactly when the proposed regulation and guidance will be published for comment, but it does say the regulation will come with a 60-day comment period and that guidance will be released at the same time.

Moreover, the letter says, the rule will not be finalized until the FSOC has “reviewed and considered” all comments.

Large P&C insurers have used members of Congress to pressure the FSOC to re-propose the regulation because they want the regulators to pin down precisely the criteria the FSOC will use in designating a non-bank as a systemically important financial institution, or “SiFi.”

They want that detail to provide a potential mechanism to challenge the designation in court.

The FSOC has the authority to designate a large insurer as SiFi under the Dodd-Frank Act.

Insurers are wary of such a designation because it will allow the Federal Reserve Board to oversee them, thereby imposing additional regulation.

Insurers also oppose the designation because it would give federal regulators authority to potentially impose a 3 percent additional-capital charge on designated companies, and also force them to contribute up front to a fund the FDIC would use to wind down a trouble financial company, whether it be insurer, bank or securities firm.

HEALTHCARE CHALLENGES NEED SUPREME COURT CLARIFICATION

The decision by a divided panel of the U.S. Court of Appeals for the 11th Circuit declaring unconstitutional the requirement that everyone purchase health insurance may be a victory for opponents of so-called “Obamacare,” but business groups are calling it a Pyrrhic one. 

The decision ensures that the Supreme Court will likely be the final arbiter of the constitutionality of the mandate to purchase insurance under the Patient Protection and Affordable Care Act, say employer groups, healthcare consultants and lawyers.

And because the decision by the 11th Circuit supports other provisions of the law, it really only muddies the waters further, says James Klein, president of the American Benefits Council.

“More than anything else, employers need certainty in order to focus on their core business mission,” Klein says.

He adds, “Whether the question is tax rates, funding obligations for their pension plans or the future of the nation's healthcare system, clear answers are essential. At least with regard to the constitutionality of the health law, only the Supreme Court can provide that clarity.”

“The fact that the 11th Circuit's decision upheld the rest of the law, while striking down the mandate, does not make the situation any clearer,” Klein concludes.

INSURERS LIGHT on CONTRIBUTions TO “SUPER COMMITTEE” MEMBERS

Insurance companies as a group were only the 10th-largest campaign contributors to members of the “super committee” on debt reduction created to find $1.5 trillion in cuts to the federal budget over 10 years by late November.

The data was provided by Maplight, a California nonprofit that analyzes campaign contributions and their links to specific legislation.

The analysis covered contributions from Jan. 1, 2001 to Dec. 31, 2010 to the 12 members of the committee. The contributions and industry classifications were established by the Center for Responsive Politics.

According to the analysis, Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, received the largest contributions among committee members over the last 10 years from the insurance industry, $676,925. Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, received $233,222 from the insurance industry. 

Rep. Jeb Hensarling, R-Texas, received the second-largest contribution in the House from the insurance industry over that period, $146,000. Hensarling is part of the Republican leadership of the House Financial Services Committee and a former aide to Sen. Phil Gramm, R-Texas, who headed the Senate Banking Committee in the late 1990s.

Rep. Chris Van Hollen, D-Md., who is active in the Democratic House leadership, received $98,200 from the insurance industry over the last 10 years. Rep. Xavier Becerra, D-Calif., received $89,250 from the insurance industry during that period, and Rep. James Clyburn, D-S.C., a member of the House Democratic leadership, received $88,500.