[Federal Register Volume 76, Number 239 (Tuesday, December 13, 2011)]
[Proposed Rules]
[Pages 77442-77446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31885]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380

RIN 3064-AD89


Mutual Insurance Holding Company Treated as Insurance Company

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is proposing a rule (``Proposed Rule''), with request 
for comments, that provides for the treatment of a mutual insurance 
holding company as an insurance company for the purpose of Section 
203(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(the ``Dodd-Frank Act''), 12 U.S.C. 5383(e). The Proposed Rule 
clarifies that the liquidation and rehabilitation of a covered 
financial company that is a mutual insurance holding company will be 
conducted in the same manner as an insurance company. The Proposed Rule 
is intended to harmonize the treatment of mutual insurance holding 
companies under Section 203(e) of the Dodd-Frank Act with the treatment 
of such companies under state insolvency regimes.

DATES: Written comments on the Rule must be received by the FDIC no 
later than February 13, 2012.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: http://www.fdic.gov/regulations/laws/federal. Follow instructions for Submitting comments on the Agency Web 
Site.
     Email: [email protected]. Include ``RIN 3064-AD89'' in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Comments may be inspected and 
photocopied in the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-I002, Arlington, VA 22226, between 9 a.m. and 5 p.m. 
(EST) on business days. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.

FOR FURTHER INFORMATON CONTACT: R. Penfield Starke, Acting Assistant 
General Counsel, Legal Division, (703) 562-2422; Mark A. Thompson, 
Counsel (703) 562-2529.

SUPPLEMENTARY INFORMATION:

[[Page 77443]]

I. Background

    Title II of the Dodd-Frank Act provides for the appointment of the 
FDIC as receiver of a nonviable financial company that poses 
significant risk to the financial stability of the United States (a 
``covered financial company''), outlines the process for the orderly 
liquidation of a covered financial company following the FDIC's 
appointment as receiver and provides for additional implementation of 
the orderly liquidation authority by rulemaking. The Proposed Rule is 
being promulgated pursuant to Section 209 \1\ of the Dodd-Frank Act, 
which authorizes the FDIC, in consultation with the FSOC, to prescribe 
such rules and regulations as the FDIC considers necessary or 
appropriate to implement Title II. Section 209 of the Dodd-Frank Act 
further provides that, to the extent possible, the FDIC should seek to 
harmonize rules and regulations promulgated under Section 209 with the 
insolvency laws that would otherwise apply to a covered financial 
company.
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    \1\ 12 U.S.C. 5389.
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    On July 15, 2011, the FDIC published in the Federal Register a 
final rule regarding certain orderly liquidation authority provisions 
under Title II of the Dodd-Frank Act.\2\ In response to the notice of 
proposed rulemaking \3\ and interim final \4\ rule that preceded the 
issuance of the final rule, commenters from the insurance industry 
urged the greatest possible deference to state regulators and to state 
laws, rules and regulations governing insurance companies and, in 
particular, state laws governing the liquidation and rehabilitation of 
insurance companies. Commenters urged the FDIC to treat mutual 
insurance holding companies as insurance companies for purposes of 
Title II of the Dodd-Frank Act.\5\
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    \2\ 76 FR 41626 (July 15, 2011).
    \3\ Notice of Proposed Rulemaking, 75 FR 64173 (October 19, 
2010).
    \4\ Interim Final Rule, 76 FR 4207 (January 25, 2011).
    \5\ Letter dated January 18, 2011, to Robert E. Feldman, 
Executive Secretary, FDIC from National Association of Insurance 
Commissioners, http://www.fdic.gov/regulations/laws/federal/2010/10Addcomment.PDF; Letter dated March 28, 2011, to Robert E. Feldman, 
Executive Secretary, FDIC from Mutual Insurance Holding Company 
Coalition, http://www.fdic.gov/regulations/laws/federal/2011/11c04Orderly.PDF.
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    In light of the comments received and pursuant to the authority 
granted to it by Section 209 of the Dodd-Frank Act, the FDIC is issuing 
the Proposed Rule, with a request for comments.

History of Mutual Insurance Holding Company

    The mutual insurance industry traces its roots back to England, 
where, in 1696, the first mutual fire insurer was established. The 
first American mutual insurance company, the Philadelphia 
Contributionship for the Insurance of Houses from Loss by Fire, was 
founded in 1752.\6\
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    \6\ The Philadelphia Contributionship, History, http://www.contributionship.com/history/index.html.
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    Mutual insurance companies are owned by their policyholders, not by 
stockholders. Policyholders are entitled to vote for members of the 
company's board of directors and may receive special dividends in the 
form of capital distributions or reductions of policy premiums.
    The mutual insurance holding company structure was first created in 
Iowa in 1995.\7\ A mutual insurance holding company is created through 
the restructuring of a mutual insurance company into two entities, a 
mutual insurance holding company and a stock insurance company that is 
converted from the original mutual insurance company.
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    \7\ Iowa Code Ann. (West) Sec.  521A.14.
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    In a variation of this restructuring, a third entity may be formed, 
an intermediate insurance stock holding company. In this three-entity 
structure, initially the mutual insurance holding company owns 100% of 
the intermediate insurance stock holding company, and the intermediate 
insurance stock holding company owns 100% of the stock of the converted 
mutual insurance company. The purpose of the restructuring is to 
preserve the benefits of a mutual form of organization while allowing 
the converted mutual insurance company access to capital markets either 
through sale of its stock or, in a three-entity structure, the sale of 
the stock of the intermediate insurance stock holding company.
    A mutual insurance holding company is owned by the policyholders of 
the converted mutual insurance company who have rights similar to those 
they had as policyholders of the mutual insurance company before 
conversion. Policyholders of the converted mutual insurance company are 
entitled to vote for members of the mutual insurance holding company's 
board of directors, and may receive special dividends in the form of 
capital distributions or reductions of policy premiums.
    A majority of the states have adopted statutes providing for the 
formation of mutual insurance holding companies. Those statutes 
generally (a) Provide for the regulation of a mutual insurance holding 
company at the holding company level by the insurance commissioner of 
the domiciliary state; (b) require that the mutual insurance holding 
company maintain voting control over the converted mutual insurance 
company; and (c) specifically subject a mutual insurance holding 
company to liquidation or rehabilitation under the state regime if the 
converted mutual insurance company is placed in liquidation or 
rehabilitation. In addition, either by statute, rule or regulation, in 
the liquidation of a converted mutual insurance company, the assets of 
the mutual insurance holding company generally are included in the 
estate of the converted mutual insurance company being liquidated.\8\
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    \8\ E.g., Iowa Code Ann. (West) 521A.14(4), 215 Ill. Comp. Stat. 
Ann. (West) 5/59.2(1)(f)(v), and Neb. Rev. Stat. Sec.  44-
6125(6)(g).
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Treatment of an Insurance Company Under Section 203(e) of the Dodd-
Frank Act

    In providing for the orderly liquidation of a covered financial 
company under Title II of the Dodd-Frank Act, Congress recognized that 
insurance companies historically had been liquidated and rehabilitated 
pursuant to a state insolvency framework. As a result, Congress 
provided that ``if an insurance company is a covered financial company 
or a subsidiary or affiliate of a covered financial company, the 
liquidation or rehabilitation of such insurance company, and any 
subsidiary or affiliate of such company that is [an insurance company], 
shall be conducted as provided under applicable State law.'' \9\
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    \9\ 12 U.S.C. 5383(e)(1).
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    The term ``insurance company'' is defined in Section 201(a)(13) of 
the Dodd-Frank Act to mean ``any entity that is--(A) Engaged in the 
business of insurance; (B) subject to regulation by a State insurance 
regulator; and (C) covered by a State law that is designed to 
specifically deal with the rehabilitation, liquidation, or insolvency 
of an insurance company.'' \10\ The identical definition is found in 
Section 380.1 of Title 12 of the Code of Federal Regulations. Concerns 
have been raised with respect to the application of this definition to 
mutual insurance holding companies because, under applicable state 
laws, a mutual insurance holding company generally is prohibited from 
engaging in the business of insurance, that is, a mutual insurance 
holding company may not sell policies of

[[Page 77444]]

insurance. Thus, a mutual insurance holding company arguably does not 
fit squarely within a literal reading of the statutory definition of 
insurance company under the Dodd-Frank Act.
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    \10\ 12 U.S.C. 5381(a)(13).
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    Given the process by which a mutual insurance holding company is 
formed from a converted mutual insurance company, the continuing 
interest of the policyholders of the converted mutual insurance company 
in both the converted mutual insurance company, as its customers, and 
the mutual insurance holding company, as equity holders, the extensive 
regulation of the mutual insurance holding company by the insurance 
commissioner of its domiciliary state, and the inclusion of the mutual 
insurance holding company and its assets in the liquidation of the 
converted mutual insurance company, it is consistent with the intent of 
the Dodd-Frank Act to treat a mutual insurance holding company, under 
certain circumstances, as an insurance company for the purpose of 
Section 203(e) of the Dodd-Frank Act.\11\
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    \11\ There is support in the legislative history of the Dodd-
Frank Act for interpreting the term ``insurance company'' under 
Section 201(a)(13) to include a mutual insurance holding company. 
See statement of Rep. Barney Frank, 111 Cong. Rec. H5216 (daily ed. 
June 30, 2010) and statement of Sen. Christopher Dodd, 111 Cong. 
Rec. S5903 (daily ed. July 15, 2010).
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II. The Proposed Rule

    The Proposed Rule would modify part 380 of title 12 of the Code of 
Federal Regulations, and would provide generally that a mutual 
insurance holding company that meets the requirements of the Proposed 
Rule will be treated as an insurance company for the purpose of Section 
203(e) of the Dodd-Frank Act.
    The Proposed Rule would add three definitions to Section 380.1 of 
title 12 of the Code of Federal Regulations: intermediate insurance 
stock holding company; mutual insurance company; and mutual insurance 
holding company.
    The Proposed Rule would add Section 380.11 to provide that a mutual 
insurance holding company shall be treated as an insurance company for 
the purpose of Section 203(e) of the Dodd-Frank Act, 12 U.S.C. 5383(e); 
provided that: (a) It is subject to the insurance laws of the state of 
its domicile, including specifically and without limitation, a 
statutory regime for the rehabilitation or liquidation of insurance 
companies that are in default or in danger of default; (b) it is not 
subject to bankruptcy proceedings under Title 11 of the United States 
Code; (c) its largest United States subsidiary (as measured by total 
assets as of the end of the previous calendar quarter) is an insurance 
company or an intermediate insurance stock holding company; and (d) its 
investments are limited to the securities of an intermediate insurance 
stock holding company, the securities of the converted mutual insurance 
company and other assets and securities of the type authorized for 
holding and investment by an insurance company domiciled in its state 
of incorporation.
    The first proviso requires that the mutual insurance holding 
company be subject to the insurance laws of the state of its domicile, 
including specifically and without limitation, a statutory regime for 
the rehabilitation or liquidation of insurance companies that are in 
default or in danger of default, and is included in the Proposed Rule 
to be consistent with two of the three prongs of the definition of 
``insurance company'' set forth in Section 201(a)(13) of the Dodd-Frank 
Act. The reference to companies that are ``in default or in danger of 
default'' ensures that the state resolution process will be applicable 
in a time and manner comparable to the Title II orderly liquidation 
process, which applies to financial companies that are in default or in 
danger of default under Section 203(b)(1) of the Dodd-Frank Act.
    The second proviso requires that it is not subject to bankruptcy 
proceedings under title 11 of the United States Code and is included to 
emphasize that the mutual insurance holding company must not only be 
subject to the applicable state insurance law but must also be resolved 
under the applicable state insurance law. Thus, the Proposed Rule would 
ensure that there is no ambiguity or conflict with respect to the 
determination of which insolvency regime is applicable to a mutual 
insurance holding company.
    The third proviso, which requires that the mutual insurance holding 
company's largest United States subsidiary (as measured by total assets 
as of the end of the previous calendar quarter) is an insurance company 
or an intermediate insurance stock holding company, is included to 
ensure that, if a mutual insurance holding company covered by the 
Proposed Rule is placed in orderly liquidation under title II of the 
Dodd-Frank Act, the Director of the Federal Insurance Office would 
participate in making the recommendation to take such action in 
accordance with the provisions of Section 203(a)(1)(C) of the Dodd-
Frank Act. In addition, this requirement is intended to emphasize that 
an insurance company subsidiary of the mutual insurance holding company 
must be its most significant subsidiary by asset size.
    The final proviso, which requires the mutual insurance holding 
company to limit its investments to the securities of the intermediate 
insurance stock holding company, the securities of the converted mutual 
insurance company and other assets and securities of the type 
authorized for holding and investment by an insurance company domiciled 
in its state of incorporation, is intended to ensure that the mutual 
insurance holding company is operating as a pure holding company and is 
not itself actively engaged in operating non-insurance businesses.\12\
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    \12\ The investments of the intermediate insurance stock holding 
company, however, are not restricted in this manner because, under 
the Proposed Rule, the intermediate insurance stock holding company 
is not treated as an insurance company for the purpose of Section 
203(e) of the Dodd-Frank Act.
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III. Request for Comments

    The FDIC seeks comments on all aspects of the Proposed Rule. 
Comments will be considered by the FDIC and appropriate revisions will 
be made to the Proposed Rule, if necessary, before a final rule is 
issued. Comments are specifically requested on the following:

    1. What terms defined by the Proposed Rule require further 
clarification and how should they be defined?
    2. Are there other terms used in the Proposed Rule that should 
be defined?
    3. Are the conditions placed on a mutual insurance holding 
company in order to be treated as an insurance company appropriate? 
Are the conditions consistent with the goal of conforming to state 
regimes governing the resolution of converted mutual insurance 
companies and their related mutual insurance holding companies?
    4. Are there any situations in which an intermediate insurance 
stock holding company should be treated as an insurance company 
under the Proposed Rule?
    5. Are there other provisions of the Dodd-Frank Act and the 
existing regulations other than Section 203(e) of the Dodd-Frank Act 
in which the definition of insurance company should expressly 
include mutual insurance holding companies?
    6. Is the approach taken in the Proposed Rule too broad, i.e., 
does it affect covered financial companies that would not 
appropriately be treated as insurance companies consistent with the 
intent of the Dodd-Frank Act?
    7. In addition to total assets, should the rule define the 
largest United States subsidiary as measured by total exposures to 
gross or net loss? Should there be any other measures?
    8. Should the treatment of a mutual insurance holding company as 
an insurance company for the purpose of Section 203(e) of the Dodd-
Frank Act be limited to companies that are materially, substantially 
or predominantly engaged in the business of

[[Page 77445]]

insurance? If so, on what basis should that determination be made: 
an asset test, an income or revenue test, a test relating to risk 
exposures, or some other measure?

IV. Regulatory Analysis and Procedure

A. Paperwork Reduction Act
    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et 
seq.) (``PRA''), the FDIC may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The Proposed Rule would not involve any new collections 
of information pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 
et seq.). Consequently, no information will be submitted to the Office 
of Management and Budget for review.
B. Regulatory Flexibility Act
    The Regulatory Flexibility Act 5 U.S.C. 601 et seq. (RFA) requires 
each federal agency to prepare a final regulatory flexibility analysis 
in connection with the promulgation of a final rule, or certify that 
the final rule will not have a significant economic impact on a 
substantial number of small entities.\13\ Pursuant to Section 605(b) of 
the Regulatory Flexibility Act, the FDIC certifies that the Proposed 
Rule will not have a significant economic impact on a substantial 
number of small entities.
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    \13\ See 5 U.S.C. 603, 604 and 605.
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    Under regulations issued by the Small Business Administration 
(``SBA''), a ``small entity'' includes those firms within the ``Finance 
and Insurance'' sector with asset sizes that vary from $7 million or 
less in assets to $175 million or less in assets.\14\
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    \14\ 13 CFR 121.201.
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    The Proposed Rule will clarify rules and procedures for the 
liquidation of a nonviable systemically important financial company, 
which will provide internal guidance to FDIC personnel performing the 
liquidation of such a company and will address any uncertainty in the 
financial system as to how the orderly liquidation of such a company 
would operate. As such, the Proposed Rule will not have a significant 
economic impact on small entities.
C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
    The FDIC has determined that the Proposed Rule will not affect 
family well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).
D. Plain Language
    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471), requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Proposed Rule in a simple and 
straightforward manner.

List of Subjects in 12 CFR Part 380

    Holding companies, Insurance companies, Mutual insurance holding 
companies.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation proposes to amend part 380 of title 12 of 
the Code of Federal Regulations as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

    1. The authority citation for part 380 is revised to read as 
follows:

    Authority: 12 U.S.C. 5383(e); 12 U.S.C. 5389; 12 U.S.C. 
5390(s)(3); 12 U.S.C. 5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D).

    2. The heading for subpart A is revised to read as follows:
Subpart A--General and Miscellaneous Provisions
Sec.
380.1 Definitions.
380.2 [Reserved]
380.3 Treatment of personal service agreements.
380.4 [Reserved]
380.5 Treatment of covered financial companies that are subsidiaries 
of insurance companies.
380.6 Limitation on liens on assets of covered financial companies 
that are insurance companies or covered subsidiaries of insurance 
companies.
380.7 Recoupment of compensation from senior executives and 
directors.
380.8 [Reserved]
380.9 Treatment of fraudulent and preferential transfers.
380.10 Calculation of maximum obligation limitation.
380.11 Treatment of mutual insurance holding companies.
380.12-380.19 [Reserved]

    3. Revise Sec.  380.1 to read as follows:


Sec.  380.1  Definitions.

    For purposes of this part, the following terms are defined as 
follows:
* * * * *
    Insurance Company. * * *
    Intermediate insurance stock holding company. For purposes of this 
subpart, the term ``intermediate insurance stock holding company'' 
means a corporation that (1) Is a subsidiary of a mutual insurance 
holding company, (2) holds all of the issued and outstanding voting 
stock of the converted mutual insurance company created at the time of 
formation of the mutual insurance holding company, and (3) holds, as 
its largest United States subsidiary (as measured by total assets as of 
the end of the previous calendar quarter), an insurance company.
    Mutual insurance company. The term ``mutual insurance company'' 
means a domestic insurance company organized under the laws of a State 
that provides for the formation of such an entity as a non-stock mutual 
association in which equity and voting rights are vested in the 
policyholders.
    Mutual insurance holding company. The term ``mutual insurance 
holding company'' means a corporation that (1) Is lawfully organized 
under state law authorizing its formation in connection with the 
reorganization of a mutual insurance company that converts the mutual 
insurance company to a stock insurance company, and (2) holds either 
(i) At least 51% of the issued and outstanding voting stock of the 
intermediate insurance stock holding company, if any, or (ii) if there 
is no intermediate insurance stock holding company, at least 51% of the 
issued and outstanding voting stock of the converted mutual insurance 
company.
* * * * *
    4. Revise Sec.  380.11 to read as follows:


Sec.  380.11  Treatment of Mutual Insurance Holding Companies.

    A mutual insurance holding company shall be treated as an insurance 
company for the purpose of section 203(e) of the Dodd-Frank Act, 12 
U.S.C. 5383(e); provided that--
    (a) The company is subject to the insurance laws of the state of 
its domicile, including, specifically and without limitation, a 
statutory regime for the rehabilitation or liquidation of insurance 
companies that are in default or in danger of default;
    (b) the company is not subject to bankruptcy proceedings under 
Title 11 of the United States Code;
    (c) the largest United States subsidiary of the company (as 
measured by total assets as of the end of the previous calendar 
quarter) is an insurance company or an intermediate insurance stock 
holding company; and
    (d) the assets and investments of the company are limited to the 
securities of an intermediate insurance stock holding company, the 
securities of the converted mutual insurance company and other

[[Page 77446]]

assets and securities of the type authorized for holding and investment 
by an insurance company domiciled in its state of incorporation.

    Dated at Washington, DC, this 7th day of December, 2011.

    By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011-31885 Filed 12-12-11; 8:45 am]
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