[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
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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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