Given the scope of the overall Obama reform plan, much affecting insurance producers and providers is left unspoken in the specific sections addressing them. Instead of taking a stand on the contentious federal charter, Treasury instead pushes specifically only for an “Office of National Insurance” or ONI. This is very similar to legislation introduced in prior Congresses by Capital Markets Chairman Kanjorski (PA), which passed the House last year without dissent. FedFin expects the ONI bill to advance quickly, with advocates of a federal charter focusing on areas where the ONI would be given authority to speak for the U.S. in international negotiations. As discussed in this report, the scope of this power could give Treasury preemptive authority over the states in critical areas like risk management and parent–company regulation even without express statutory change creating a federal charter.
Any insurance company of any size would be covered by prudential standards determined by Treasury if the ONI’s international–related authority reaches as far as Treasury hopes. However, ONI would also finger firms big enough to trigger FRB systemic–risk regulation, coming under the new systemic–resolution regime. This in part addresses a major unanswered question in the old optional federal charter debate: how to handle a large failure if the state guarantee system is insufficient and/or if the insurance company’s problems are housed in parents and affiliates not covered by the states. This would still leave unclear the treatment of certain insurers (e.g., monoline bond) that trip what Rep. Kanjorski has called a “national interest” test even if they otherwise do not pose systemic risk. Coverage of these firms – many of which seek a federal charter – will be a critical issue as the ONI proposal advances. FedFin expects limited–purpose federal charters to be seriously considered, although final action on them this year is at best uncertain. Another immediate concern for insurers is how they would fare under the proposed Consumer Financial Protection Agency. Treasury will send legislation to Congress later this week, likely focusing only on annuities despite calls in the plan for broader consumer protection standards covering an array of insurance products.
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