On Friday, the Property Casualty Insurers Association of America (PCI) urged the Financial Stability Oversight Council (FSOC) to preserve the legislative intent of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the “Volcker Rule”.
In a letter to Treasury Secretary Timothy Geithner, PCI stressed that regulators should interpret the Volcker Rule according to the language expressly written in the act. “We believe it is important that the FSOC recommendations emphasize the intent and decision of Congress to exclude state-regulated insurers from the Volcker Rule to avoid unnecessary, duplicative federal regulation,” said Jim Olsen, senior director of accounting and investment policy for PCI.
As passed in the Dodd-Frank Act, the Volcker Rule generally prohibits banking entities and their affiliates from engaging in proprietary trading. However, the Volcker Rule specifically excludes state-regulated investments of an insurance company and its regulated insurance affiliates and subsidiaries from the new law to avoid duplicative regulation at the federal level.
“Congress recognized that the state-based insurance regulatory system provides broad consumer protections and enforces strong rules for keeping companies solvent,” said Olsen. “Lawmakers identified that insurance investments are already subject to strict state insurance investment laws to protect consumers’ interests. Insurers are not highly leveraged and the industry engages in low-risk, conservative investments with liquidity ratios that assure policyholders’ claims will be paid.”
According to the Dodd-Frank Act, the FSOC is directed to study and make recommendations on means to “appropriately accommodate the business of insurance within an insurance company subject to regulation in accordance with relevant insurance company investment laws, while protecting the safety and soundness of any banking entity with which such insurance company is affiliated and of the United States financial system,” among other matters.
While Congress excluded state-regulated insurance companies and affiliates from the Volcker Rule, stringent consumer and marketplace protection measures remain in place and will continue to be enforced. All insurer investments must continue to comply with existing applicable state insurance investment laws and regulations. Federal banking agencies will still monitor existing state investment laws and regulations to protect the safety and soundness of the nation’s financial stability. However, the exemption does not affect an insurer’s affiliated banks and non-insurance affiliates which will be subject to proprietary t