[Congressional Record Volume 160, Number 152 (Friday, December 12, 2014)]
[Extensions of Remarks]
[Pages E1796-E1797]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  SUPPORT OF THE INSURANCE CAPITAL STANDARDS CLARIFICATION ACT OF 2014

                                 ______
                                 

                          HON. GARY G. MILLER

                             of california

                    in the house of representatives

                      Thursday, December 11, 2014

  Mr. GARY G. MILLER of California. Mr. Speaker, I along with Mrs. 
McCarthy of New York have authored legislation to address the capital 
requirements that apply to insurance companies under federal 
supervision pursuant to the Dodd-Frank Act. This legislation would 
strengthen the regulatory regime applicable to federally supervised 
insurance companies by

[[Page E1797]]

ensuring that they are not subject to bank-centric capital standards.
  One of the central elements of the Dodd-Frank Act's financial reforms 
was stronger capital rules for both banks and certain non-bank 
financial institutions. Two sections of the Dodd-Frank Act expanded 
Federal Reserve authority to regulate large banks and imposed increased 
capital requirements--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.
  We have been disappointed by the Federal Reserve's 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 the insurance business model. We continue to 
believe that the regulators could solve this problem using their 
existing authority. Our House bill, H.R. 4510, shows that there is 
strong bipartisan support for addressing this issue, with 227 of our 
colleagues cosponsoring the bill. A slightly amended version of our 
legislation, which we support, passed the Senate with unanimous support 
in early June, and passed the House as part of a larger package in July 
of this year. We are pleased that final action on this legislation is 
imminent, and hope it will be sent to the President before the end of 
the session.
  Our bill (and the Senate version, S. 2270) is narrowly crafted to 
only address this issue as it relates to federally supervised insurance 
companies, including SIFIs and insurance savings and loan holding 
companies. Under the legislation banks will be subject to the full 
force of the Collins Amendment. That is as it should be, and we will 
not change that.
  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 federally supervised insurance companies. Alternatively, 
the Fed could defer to state insurance regulators for the capital 
standards that should apply to the insurance activities that they 
regulate.
  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. 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.
  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.
  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. Additionally, we believe the principle of 
preserving SAP should apply to any international discussions relating 
to insurance.
  This bill 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.
  We and the many other supporters of this bill are pleased that the 
House is poised to consider a final version of this legislation and 
look forward to it reaching the President's desk soon. We expect 
regulators to follow through with appropriate, tailored capital rules 
for insurers under their supervision.

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