April 28, 2015

Shelby Opening Statement at Hearing on the State of the Insurance Industry and Insurance Regulation

WASHINGTON, DC – Tuesday, April 28, 2015 – U.S. Senator Richard Shelby (R-Ala.), Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, today delivered the following opening remarks during a full committee hearing on “The State of the Insurance Industry and Insurance Regulation.”

The text of Chairman Shelby’s remarks, as prepared, is below.  

“Today, the Committee will examine several issues of importance to the insurance industry both domestically and internationally.

“Dodd-Frank drastically altered the regulatory landscape for insurers.  It imposed a Federal regulatory framework on some insurers, despite a clear exemption that exists under the 1945 McCarran-Ferguson Act. 

“As a result, current law subjects certain insurance companies to regulatory requirements similar to those for banks.  While supporters of the existing regime claim that the law provides enough flexibility to account for differences between banks and insurers, many critics believe that it does not.

“As a liability-driven business, insurance often has long-term cash flow patterns compared to shorter-term activities at banks.  Consequently, current law fails to adequately account for the business model and risk profile of insurance companies, and that should concern us all.

“Last Congress we passed the so-called Collins fix to make clear that the Federal Reserve has the flexibility to structure capital standards for insurers based on their unique nature.  Initially, the Federal Reserve proposed capital standards that, if applied to insurers, would have been all-too-similar to the capital standards for banks.

“Recognizing this to be a mistake, the Fed then initiated a Quantitative Impact Study or QIS to better-understand how to design a capital framework for the insurance holding companies it supervises.  I welcomed this development as I have always believed that a strong empirical analysis should inform our regulatory rulemaking process.

“It would be unfortunate, however, if the Fed uses the QIS process solely to buy time for international insurance capital standards to be developed and subsequently adopted here in the U.S.  An international regulatory regime should not dictate how U.S. regulators supervise American or U.S. based companies.

“Recently, for example, decisions made at the Financial Stability Board or FSB have been adopted in the U.S. by the FSOC with what appears to be little independent evaluation.  I have publicly expressed my concerns with both the FSB and the FSOC processes.

“The FSB is not a U.S. regulator, and it is not accountable to Congress or the American people.  Therefore, the FSOC should not merely be a rubber stamp for the decisions made by an unaccountable international body like the FSB.

“The Treasury Secretary, who also chairs the FSOC, has told this Committee that the FSB’s decisions do not bind the FSOC.  The FSOC’s recent actions, however, leave us to wonder if some of the FSOC members agree with Secretary Lew on this point.

“When it comes to insurance, our regulators should acknowledge that the U.S. insurance industry is structured and operates differently than its European counterparts.  Our representatives to these international discussions must ensure that their positions, and especially any resulting agreements, recognize these differences and do not disadvantage U.S. companies.  The insurance industry has traditionally weathered economic downturns relatively well, and the state-based regulatory framework generally works to protect policyholders.

“Today’s panel will help us better understand the unique nature of insurance, and hopefully shed light on how to appropriately take into account the differences between banking and insurance.  The Committee can then consider whether any changes need to be made to current law.”