U.S. House Financial Services Subcommittee Reviews Five Insurance Regulatory Bills; PCI Representative Testifies

May 21, 2014


The U.S. House Committee on Financial Services’ Housing and Insurance Subcommittee (“Subcommittee”) reviewed five legislative proposals addressing domestic insurance issues yesterday, May 20, 2014, during a hearing entitled “Legislative Proposals to Reform Domestic Insurance Policy.”

The one-panel hearing included the following witnesses (click on the hyperlinks below to access each person’s testimony):

  • Mr. Joe E. Carter, Vice President, Business Development and Marketing; United Educators
  • Mr. Gary Hughes, Executive Vice President and General Counsel; American Council of Life Insurers
  • Mr. Tom Karol, Federal Affairs Counsel; National Association of Mutual Insurance Companies
  • Mr. Joseph C. Kohmann, Chief Financial Officer and Treasurer; Westfield Group, on behalf of the Property Casualty Insurers Association of America
  • Professor Daniel Schwarcz, Associate Professor of Law; University of Minnesota Law School

The following bills and proposals were discussed:


H.R. 605, the Insurance Consumer Protection and Solvency Act of 2013

H.R. 605, the Insurance Consumer Protection and Solvency Act of 2013, introduced by U.S. Representative Bill Posey, makes technical and conforming changes to clarify that state insurance laws govern the liquidation or rehabilitation of an insurance company.  The bill would also clarify that insurance companies are exempt from the risk-based assessments that the Federal Deposit Insurance Corporation is authorized to impose in connection with the “orderly liquidation” of a failed financial institution under Section 210(o) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”).


H.R. 4557, the Policyholder Protection Act of 2014

H.R. 4557, the Policyholder Protection Act of 2014, also introduced by Representative Posey, extends the policyholder protections of the Bank Holding Company Act to bank-affiliated insurance companies organized as thrift holding companies.  Under the Bank Holding Company Act, if a failing bank is affiliated with an insurance company through a bank holding company structure, a state insurance regulator can intervene to protect the solvency of the insurance company and its policyholders.


The Risk Retention Modernization Act of 2014 (Not yet filed)

Not yet filed as of the time of yesterday’s hearing, the Risk Retention Modernization Act of 2014 by U.S. Representative Dennis Ross would expand the authority of risk retention groups– a mechanism for self-insurance–to offer commercial lines of insurance, such as property and auto physical damage.  The 1986 amendments to the Liability Risk Retention Act authorized risk retention groups to expand their roles by pooling their risk to self-insure their liability risks on a group basis.  This legislation would allow risk retention groups to create efficiencies by expanding their commercial lines of coverage, rather than seeking additional coverage elsewhere.


The Insurance Data Protection Act (Not yet filed)

Also not yet filed as of the time of yesterday’s hearing, the Insurance Data Protection Act by U.S. Representative Steve Stivers would limit the authority of the Federal Insurance Office (“FIO”) and the Office of Financial Research (“OFR”) to subpoena data from insurance companies.  The bill maintains the authority of the FIO and the OFR to subpoena data from insurance companies; but, (1) approval must be obtained from the Secretary of the U.S. Treasury, (2) it must be verified that such data is not available through the insurance company’s state regulator, another federal agency, or a public source, and (3) it must be agreed to reimburse insurance companies for the cost of producing the data.  The legislation would also require federal entities and state regulators (1) to maintain the confidentiality of non-public data obtained from or shared with other federal and state regulators, and (2) comply with the Paperwork Reduction Act.


H.R. 4510, the Capital Standards Clarification Act of 2014

H.R. 4510, the Capital Standards Clarification Act of 2014 by U.S. Representatives Gary Miller and Carolyn McCarthy, would clarify the application of capital requirements to insurance companies that are subject to supervision by the Federal Reserve Board (“FRB”).

Pursuant to Dodd-Frank, insurance companies that own savings and loan associations and insurance companies that are designated as “systemically important” by the Financial Stability Oversight Council are subject to supervision by the FRB.  Section 171 of Dodd-Frank separately requires that the FRB impose certain minimum leverage and risk-based capital requirements on the companies that it supervises.  The FRB has interpreted Section 171 to require the application of bank capital rules (the so-called Basel III capital standards) to the insurance companies it supervises.

H.R. 4510 would clarify that, in establishing the minimum leverage and risk-based capital standards under Section 171, the FRB is not required to include the assets and liabilities of companies that are engaged in the business of insurance and are subject to state-based insurance capital requirements or capital requirements imposed by a foreign country that have not been deemed to be inadequate.


Property Casualty Insurers Association of America Representative Testifies

Joseph Kohmann, chief financial officer and treasurer of the Westfield Group, who testified yesterday on behalf of the Property Casualty Insurers Association of America (“PCI”), told Subcommittee members that “PCI and Westfield support strong regulation. But our growth is being restrained by unintended consequences stemming from an expansion of banking regulation in the Dodd-Frank Act that conflicts with state insurance regulation.”

“PCI and Westfield ask Congress to enact H.R. 4510, the Insurance Capital Standards Clarification Act of 2014.  In essence, H.R. 4510 simply clarifies the original legislative intent of Congress in the Dodd- Frank Act that in regulating insurance holding companies with banks or thrift affiliates, the Federal Reserve Board should apply bank capital standards to the banking portion and insurance capital standards to the insurance operations,” Kohmann explained.  “A strict application of bank capital requirements to our insurance activities just doesn’t make sense.”

“H.R. 605, the Insurance Consumer Protection and Solvency Act, ensures that resolution of insurance companies and their assets is conducted by insurance regulators, not by a federal banking agency.  It would also prevent the Federal Deposit Insurance Corporation, primarily responsible for bank resolutions, from using insurance assets to support failing banks.” Continued Kohmann.  “Insurers are already responsible for resolving their own failures and pay for guaranty funds in every state to protect consumers. Don’t let insurance policyholder protection funds be used to support risky investment firms and banks.”

“H.R. 4557, the Policyholder Protection Act of 2014, requires federal bank regulators, before transferring assets of insurance companies to banks, to ask the insurance regulator to determine if the transfer would harm the insurer,” continued Kohmann. “This seems like another common sense clarification to limit a regulatory conflict of interest and avoid harming insurance policyholders to support a bank.”

“The proposed Insurance Data Protection Act would provide additional protections for confidential proprietary data shared among insurance companies and government entities, and limit rather extraordinary regulatory subpoena power given to non-regulators,” Kohmann said. “This will prevent potential future costly data calls by entities who neither supervise our companies, nor are responsible for our solvency.”

“The theme of all these bills is that insurance and banking regulation are fundamentally different. Congress has the opportunity to clarify that regulation of insurance companies and activities should be conducted using insurance standards and supervisors. We appreciate the committee’s work on these bills and would be pleased to work with members of Congress towards their enactment,” he concluded.




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