2015 0430 – GOV (Senate) – Examining Insurance Capital Rules and FSOC Process, Mike Crapo (R-ID)

2015 0430 – GOV (Senate) – Examining Insurance Capital Rules and FSOC Process, Mike Crapo (R-ID)

• 2015 0430 – GOV (Senate) – Examining Insurance Capital Rules and FSOC Process, Mike Crapo (R-ID)  —  [BonkNote]
  • Examining the Federal Reserve’s Implementation of the Collins Amendment to Tailor Capital Rules for Insurers on FSOC’s Designation Process for Nonbank SIFIs and for International Capital Developments for Insurers
  • [PDF-70p, VIDEO-Senate] – <mp3, mp4> –
  • Tim Scott (R-SC)
  • ACLI /AIA – Robert M. Falzon, Executive Vice President and Chief Financial Officer, Prudential Financial, on behalf of the American Council of Life Insurers and the American Insurance Association
    • 2015 0430 – ACLI – Statement Robert M. Falzon – 15p
  • PCI / NAMIC – Kurt Bock – Chief Executive Officer, COUNTRY Financial, on behalf of PCI and NAMIC
  • Law Professor – Daniel Schwarcz, Professor and Solly Robins Distinguished Research Fellow, University of Minnesota Law School
  • AAA – Elizabeth Brill, Chairperson, Solvency Committee Risk Management and Financial Reporting Council, American Academy of Actuaries – 5p
  • Senate – Committee on Banking, Housing, and Urban Affairs – Subcommittee on Securities, Insurance, and Investment

• (p12) – Daniel SCHWARCZ, Law Professor – Absolutely, I think stress testing is very important. I think the difference is the Fed needs to stress-test specific to systemic circumstances, and so the types of stresses that it is going to consider are stresses to the broader financial system that occur simultaneously with stresses to the firm.

  • The other point I would like to make is it is absolutely true that most of the time life insurers’ liabilities are long term. But the very reason or one of the core reasons why firms get designated as SIFIseven though they engage predominantly in insurance is because liabilities that seem long term and usually are long term can become short term in systemic scenarios. For instance, policyholders can cash out or surrender; guaranteed investment contracts can be canceled. So stress testing for SIFIs needs to specifically look at the possibility that otherwise long-term liabilities will become short term and ask whether or not the firm can handle that given the sort of dominant assumption that in most times the liabilities are very long term and predictable.

• (p12) – Mr. FALZON. Senator, I need to object to the observation that was just made. I think that both the review process for Prudential as a designation as a SIFI and that that was done for Metropolitan Life, we demonstrated with a body of evidence that, in fact, the acceleration of liabilities on an insurance company’s balance sheet does not give rise to systemic risk and, in fact, has been fairly modest. The evidence does not support the conjecture of that argument. I have not gone through the books. They are not available to me. But FSOC has indicated that is one of the reasons why both Prudential and MetLife were designated, and for that reason, stress tests need to take that into account

• (p12) – Mr. SCHWARCZ. Can I just say one thing? Much of the information is not in the public domain, so I cannot say one way or another whether that is right. What I can say is that the FSOC decided in its public basis that indeed there was systemic risk associated with the possibility of a run on-and that was one of the bases of its designation. So I cannot personally say whether that is right. I have not gone through