[Congressional Record (Bound Edition), Volume 160 (2014), Part 7]
[Extensions of Remarks]
[Pages 10105-10106]
[From the U.S. Government Publishing Office, www.gpo.gov]




              SUPPORT FOR S. 2270 AS PASSED BY THE SENATE

                                  _____
                                 

                          HON. GARY G. MILLER

                             of california

                    in the house of representatives

                        Thursday, June 12, 2014

  Mr. GARY G. MILLER of California. Mr. Speaker, last week the Senate 
passed legislation to address capital requirements for insurers that 
are supervised by the Federal Reserve Board. The Senate-passed 
legislation is substantially similar to H.R. 4510, legislation that 
Rep. Carolyn McCarthy and I introduced earlier this year, and we 
strongly support it.
  The legislation passed by the Senate would ensure that insurance 
companies that are either nonbank systemically important financial 
companies (SIFIs) or savings and loan holding companies (SLHCs) are not 
subject to banking capital standards. There is unanimous agreement 
among policymakers and other experts that it is inappropriate and 
harmful to subject insurance companies to bank capital standards 
because of the critical differences between the two business models.
  Insurance companies, particularly life insurance companies, make 
long-term investments to match long-term liabilities such as life 
insurance, annuities, and pensions. By contrast, banks are subject to 
immediate calls on assets, particularly under times of economic stress, 
and must maintain a high level of liquidity to pay out demand deposits. 
Bank regulatory standards are tailored to that business model, while 
state risk-based capital standards are tailored to the insurance 
business model. Imposing bank standards on insurers under Federal 
Reserve supervision would disrupt insurance markets and hurt consumers 
by causing insurers to shift into assets that are inappropriate for the 
insurance business model and asset-liability matching principles. 
Alternatively, insurers might be compelled to exit certain capital-
intensive product lines, which is bad for consumers.
  The intent of S. 2270 as passed by the Senate would be to avoid these 
problems and ensure that regulators do not impose bank capital 
standards on insurers supervised by the Federal Reserve. The 
legislation amends section 171 of the Dodd-Frank Act and clarifies that 
the Federal Reserve may create tailored insurance capital standards, as 
necessary, for supervised holding companies with insurance operations.
  To accomplish the goal of directing the Federal Reserve to tailor 
rules for insurance, the Senate-passed legislation permits the Federal 
Reserve to create a tailored, non-bank-centric capital regime for the 
insurance operations of supervised entities. Under the Senate bill, 
banking activities of insurers would remain subject to consolidated 
capital standards under section 171.
  In distinguishing between insurance versus non-insurance activities 
of a supervised entity,

[[Page 10106]]

the legislation provides regulators with the flexibility to tailor the 
rules for subsidiaries of insurance companies that support and are 
necessary to the business of insurance, including, for example, 
subsidiaries that support insurance company general and separate 
accounts. The Senate-passed legislation defines ``business of 
insurance'' by reference to section 1002 of the Dodd-Frank Act. 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.
  Consistent with congressional intent, the Senate legislation would 
also help ensure that the Federal Reserve use its authority to tailor 
capital rules for insurance operations of entities under its 
supervision, regardless of the depository institution subsidiary's 
size. It would be inappropriate and detrimental to insurance consumers 
for the Federal Reserve to impose a banking capital regime on the 
entire enterprise of a large insurer that happens to own a large 
insured depository institution--the depository institution in that 
operation will be subject to appropriate banking standards under 
current law, and the insurance operations should be subject to 
appropriate insurance standards.
  Another important provision of our legislation and the Senate-passed 
legislation addresses the issue of insurance accounting. Every publicly 
traded company in the United States is required to prepare consolidated 
financial statements under Generally Accepted Accounting Principles 
(GAAP), and all insurance companies in the United States are required 
by their state insurance regulators to use an accounting method known 
as Statutory Accounting. In fact, many mutual insurance companies only 
use Statutory Accounting in preparing their financial statements.
  Statutory Accounting Principles are more conservative than GAAP 
because they are specifically designed to promote insurer solvency and 
the ability to pay claims rather than measuring an insurer's value as a 
going concern. Mandating that insurers using only SAP adopt GAAP 
accounting would impose significant cost and a multi-year time 
commitment on those insurers with limited, if any, supervisory benefit 
to regulators.
  H.R. 4510 includes a provision prohibiting the Federal Reserve from 
imposing GAAP accounting on insurers that only prepare and file SAP 
statements at the holding company level. S. 2270 was amended to include 
a provision clarifying that nothing in the legislation prevents the 
Federal Reserve from obtaining any information it is otherwise entitled 
to obtain from a SAP-only insurer. We support this change, and also 
support the House passage of the legislation as amended by the Senate, 
which has the unanimous support of the Senate, as well as other 
important constituencies. The key purpose here is to ensure that 
insurance entities affiliated with depository institutions are not 
subject to the unfair, bank centric capital standards, regardless of 
the accounting model they utilize.
  Mr. Speaker, we and the many other supporters of insurance capital 
legislation are pleased that S. 2270 as amended passed the Senate and 
look forward to its passage by the House. We also look forward post-
enactment to working with regulators as they develop rigorous, well 
tailored standards that reflect the insurance business model.

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