[Congressional Record Volume 160, Number 150 (Wednesday, December 10, 2014)]
[Senate]
[Pages S6530-S6531]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         INSURANCE CAPITAL STANDARDS CLARIFICATION ACT OF 2014

  Ms. COLLINS. I ask unanimous consent to engage in a colloquy with 
Senators Brown and Johanns.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Ms. COLLINS. Mr. President, in June of this year the Senate passed by 
unanimous consent, S. 2270, urgent legislation I introduced with 
Senators Brown and Johanns to address the capital requirements that 
apply to insurance companies under Federal supervision pursuant to the 
Dodd-Frank Act. This legislation clarifies the Federal Reserve's 
authority to recognize the distinctions between banking and insurance 
when implementing section 171 of the Dodd-Frank Act, ensuring that 
bank-centric capital standards are not applied to such companies' 
regulated insurance activities.
  One of the central elements of the Dodd-Frank Act was stronger 
capital rules for both banks and certain non-bank financial 
institutions. Two sections of the Dodd-Frank Act accomplished this--
section 165, which applies to large bank holding companies and to non-
bank systemically important financial institutions, SIFIs, and section 
171, which applies minimum capital standards to insured depository 
institutions, depository institution holding companies, including 
insurance savings and loan holding companies, and to SIFIs.
  Insurance companies, specifically insurance savings and loan holding 
companies, are different from banks. Insurers must match long-term 
obligations

[[Page S6531]]

to their policyholders with long-term assets, mostly bonds, while banks 
have more callable obligations--securities and loans and mortgages--and 
fund them with deposits as well as a mix of debt and equity of varying 
maturities and durations. The Dodd-Frank legislation reflected this 
reality, both in its text and in the legislative history, which 
repeatedly recognizes that the business of insurance is unique and 
presents different risks.
  Mr. BROWN. I and other original cosponsors and strong supporters of 
S. 2270 have, like you, been disappointed by the regulators' failure to 
recognize that they have the authority to implement the Collins 
amendment as it applies to insurers in a manner that tailors the 
capital requirements for insurers to reflect the substantial 
differences between insurers and depository institutions. We continue 
to believe that the regulators could solve this problem using their 
existing authority. This legislation shows that there is strong 
bipartisan support for addressing this issue. As you know, 31 of your 
colleagues and I cosponsored the bill, and the legislation passed the 
Senate with unanimous support in early June.
  S. 2270 is narrowly crafted to only address this issue as it relates 
to insurance companies and insurance savings and loan holding 
companies. If you are a bank, or another entity that owns a bank, you 
will be subject to the full force of the Collins amendment for your 
banking activities. At the same time, if you are a financial 
organization engaged in insurance which is also engaged in bank 
activities, including derivatives market making, those activities would 
be subject to the Collins amendment.
  To accomplish the goal of directing the Federal Reserve to tailor 
rules for insurance, our legislation permits the Federal Reserve to 
create a non-Basel III regime for the insurance operations of 
supervised entities. The legislation allows the Fed to work with State 
insurance regulators to develop appropriate insurance-based capital 
standards for insurance activities.
  Mr. JOHANNS. I am an original cosponsor of this legislation and 
appreciate your long-standing partnership on this issue. The bill 
clarifies that, in establishing the minimum leverage capital and risk-
based capital standards under section 171, the Federal Reserve Board is 
not required to include activities or companies that are engaged in the 
business of insurance and are subject to State insurance regulation, 
including State insurance capital requirements. Similarly, regulated 
foreign affiliates or subsidiaries engaged in the business of insurance 
and subject to foreign insurance regulation and foreign insurance 
capital requirements that have not been deemed to be inadequate also 
may be excluded from section 171 capital standards. We believe it is 
worth noting that the Government Accountability Office found that the 
State risk-based capital rules performed well during the financial 
crisis.
  The bill allows the insurance capital requirements that have been 
effective to continue to determine the capital requirements for the 
activities of insurance companies and groups that are supervised by the 
Federal Reserve Board. Furthermore, activities of a holding company 
supervised by the Federal Reserve Board that are not the business of 
insurance would remain subject to the capital standards under section 
171. In determining insurance versus non-insurance activities of a 
supervised entity, the legislation provides regulators with the 
flexibility to tailor the rules for certain affiliates or subsidiaries 
of insurance companies that are necessary to the business of insurance, 
including, for example, affiliates or subsidiaries that support 
insurance company general and separate accounts.
  Our legislation defines ``business of insurance'' by reference to 
section 1002 of the Dodd-Frank Act, and under this definition the 
business of insurance means ``the writing of insurance or the 
reinsuring of risks by an insurer, including all acts necessary to such 
writing or reinsuring and the activities relating to the writing of 
insurance or the reinsuring of risks conducted by persons who act as, 
or are, officers, directors, agents, or employees of insurers or who 
are other persons authorized to act on behalf of such persons.'' The 
reference to this definition of the ``business of insurance'' will help 
ensure that insurance activities of federally supervised companies are 
subject to tailored capital rules, whether those activities are 
undertaken by the insurance companies themselves or by their affiliates 
or subsidiaries on their behalf.
  Ms. COLLINS. We also want to ensure that the Federal Reserve uses its 
authority to tailor capital rules for insurance operations of entities 
under its supervision, regardless of the size of the subsidiary insured 
depository institution. As we have stated, under this legislation and 
under current law, the Basel banking regime and the Collins amendment 
requirements will continue to apply to all insured depository 
institutions. It would be at odds with sound public policy and the 
intent of this legislation for the Federal Reserve to impose a Basel 
banking capital regime on the entire enterprise of an insurer that 
happens to also own a sizable insured depository institution--the 
depository institution in that operation will already be subject to 
banking rules, but the insurance operations should not be.
  Mr. BROWN. Another important provision of our legislation addresses 
the issue of insurance accounting for a small number of non-publicly 
traded insurance companies. While every publicly traded company in the 
United States is required by the Federal Securities laws to prepare 
consolidated financial statements under Generally Accepted Accounting 
Principles, GAAP, all insurance companies in the United States--whether 
in mutual or stock form of organization--are required by their State 
insurance regulators to utilize an accounting method known as Statutory 
Accounting. Indeed, most mutual insurance companies only use Statutory 
Accounting in preparing their financial statements.
  Statutory Accounting Principles, SAP, are generally more conservative 
than GAAP because they are specifically designed to promote insurer 
solvency and the ability to pay claims instead of measuring an 
insurer's value as a going concern. SAP does not allow a number of non-
liquid or intangible assets to be included on an insurer's balance 
sheet and provides less favorable accounting treatment for certain 
expenses. In both the text of the Dodd-Frank Act and its legislative 
history, Congress recognized the acceptability of SAP for holding 
companies engaged in insurance activities coming under Federal Reserve 
jurisdiction. Specifically, Congress 1) directed the Federal Reserve to 
rely on existing reports and information provided to State and other 
regulators (which for insurance companies would have been prepared 
according to SAP); and 2) included Senate report language stating that 
Federal Reserve assumption of jurisdiction over savings and loan 
holding companies engaged in the business of insurance did not reflect 
a mandate to impose GAAP. However, in proposed rulemakings, the Federal 
Reserve expressed its intention to require all companies to eventually 
prepare GAAP financial statements-consistent with their existing model 
for all bank holding companies. Imposing such a mandate on companies 
using only SAP would cost insurers a substantial amount to take on 
multi-year financial projects yielding minimal, if any, supervisory 
benefit to regulators.
  S. 2270 makes clear that under Section 171 of the Dodd-Frank Act and 
the Home Owners' Loan Act, such a mandate is inappropriate where the 
holding company is a non-publicly traded insurance company that is only 
required to prepare and file SAP statements. Nothing in this provision 
prevents the Federal Reserve from obtaining any information it is 
otherwise entitled to obtain from a SAP-only insurer.
  Ms. COLLINS. Mr. President, I and the many other supporters of S. 
2270 are pleased that this legislation has passed the Senate. It is 
critical that this legislation be enacted this year. We look forward to 
its enactment this year and working with regulators as they implement 
appropriate, tailored capital rules for insurers under their 
supervision.

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