Insurers issue letter on Fed thrift proposal

Furthermore, the letter said that the proposed rules would require the implementation of GAAP accounting standards by January 2013, "which is simply infeasible for insurers not currently reporting under GAAP (Generally Accepted Accounting Principles).

"There is insufficient time for insurers to implement the systems and processes necessary to provide the data required by the proposals," the CFO letter said.

The letter also contended that the proposal would call for double-counting of assets and differentiate on the capital treatment of separate account assets depending or not on whether they are considered "non-guaranteed."

If the separate account is considered "non-guaranteed," then the separate account assets will get a 0 percent risk weight. If the separate account assets are not considered "non-guaranteed," then they will be treated as if they were general account assets and risk-weighted based on the underlying assets, the letter said.

"First, the definition of 'non-guaranteed' is overly broad and it threatens to include contractual commitments on separate account products that are not guarantees of the value of the separate account assets, but are promises to pay an additional benefit in the event of an insurable event," the letter said.

"These contractual commitments are reflected in the insurers' general account reserves and backed by general account assets that are already subject to a capital charge," the letter said. Therefore, "there should not be a second capital charge against the separate account assets," the letter said.

In conclusion, the coalition of chief financial officers asked the Fed, the Federal Deposit of Insurance Corporation and the OCC "to further study the impact of the proposal and engage the industry directly to arrive at final regulations that both strengthen the economy and appropriately accommodate the business of insurance."

The imposition of a bank-centric capital framework on insurance organizations "would be duplicative, unduly burdensome and costly, and may drive insurers to make business decisions based on a capital framework that does not adequately assess their risks," the letter from the CFOs said.

"This could cause negative distortions in the marketplace, introduce more risk into the financial system and increase costs for customers/policyholders," the CFO letter concluded.

In its comments, NAMIC said the Fed has proposed a banking standard "that bears no meaningful relationship to the allocation of capital and use of leverage in the insurance world."

The NAMIC comments said the Collins amendment authorizes the Fed to impose a framework that takes into account insurance-based capital requirements. "However, the Fed has proposed implementing the Collins Amendment in a rigid bank-centric manner," the letter said.

"As a result, insurers are confronting tremendous and needless added uncertainty concerning the rules of the road governing capital allocation and how capital should be deployed in the future," the NAMIC letter said.

Moreover, the NAMIC letter said, the "proposals represent a sea change for insurance SLHCs."

The Nationwide letter said the company is concerned "that the application of an undifferentiated, bank-centric capital framework to all organizations with a depository institution, without regard to their predominant line of business or their unique set of risks, raises safety and soundness concerns for SLHCs, makes it increasingly difficult for SLHCs to serve as a source of financial strength to their depository institution subsidiaries as required by HOLA, and increases the threat of systemic risk in the U.S. financial system.

The Nationwide letter was signed by Mark R. Thresher, executive vice president and chief financial officer.