24 th Annual NOLHGA Legal Seminar July 21, 2016 Washington, D.C. - - PDF document

The Changing Shape of International Regulatory Modernization and Progress in 2016 and Beyond

24th Annual NOLHGA Legal Seminar

July 21, 2016  Washington, D.C.

The Cauldron Keeps Boiling

►NAIC ►Congress: Dodd-Frank; Federal Oversight/Hearings ►Federal Actors: FIO, Federal Reserve, FSOC, FDIC and OFR ►International Developments: FSB, IAIS, Resolution Focus ►Covered Agreement Negotiation ►DOL Fiduciary Duty Rule ►ACA Co-Op Problems ►Cyber Risk and Insurance

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NAIC Activity Continues

Federal and International Engagement and Response…

►Heavy Federal and International Roles After Dodd-Frank; May 2016 NAIC

International Insurance Forum Debuts Fed Capital Proposal

►Holding Company and Other Solvency Modernization Initiatives ►Responding to FSAP (Including Receivership Issues)

…plus an Active Domestic Agenda

►Elder, Retirement, and Long Term Care Issues ►Product and Compliance Issues ►Impact of DOL Fiduciary Duty Rule ►Cybersecurity, Privacy and Other Consumer Protections ►NAIC’s Policyholder Protection Act, S. 798 (Vitter), H.R. 1478 (Posey) =

12/18/15 in Appropriations Bill

►New CEO Due in 2016

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Congress: Sound and Fury…

► Continued House GOP attempts to repeal and replace Dodd-Frank

• H.R. 5143 (Neugebauer) – Transparent Insurance Standards Act
• Chairman Hensarling Financial CHOICE Act
• H.R. 4894 (Westmoreland) – Repeal Title II of Dodd-Frank
• H.R. 3340 – FSOC Reform Act (Ennea)

► FSOC Considers Revisiting Non-Bank SIFI Designation Process and Addresses SIFI “Exit Ramp”

Questions; Continuing GOP/Industry Criticism on “Lack of Transparency,” “Road Map for De-Risking,” and “Activities-Based Approach”

► House Financial Services Hearings (7/14/15, 9/17/15, 9/29/15,11/19/15, 2/25/16); Senate Banking

Hearing 7/22/15

• Dodd-Frank Act and Regulatory Overreach
• Financial Regulation Overhaul
• International and Domestic Capital Standards
• FSOC Complaints

► Continuing Congressional Concerns

• Ever-Popular Topics of Transparency, Accountability and Exit Ramp
• Fears of Bank-Centric Regulation
• International Impact on Domestic Regulation (Especially Systemic Designations)
• Call for “Activities-Based” (Rather Than Group or Company Systemic Regulation)

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FIO Continued Activity and Still Potential for Even More

►FIO Director McRaith’s Activism

• “Covered Agreement” Process Continues
• Updated Priorities from FIO Modernization Report
• TRIA Implementation Brings Enhanced Role; Work with NAIC on Data

Gathering

• Continued International Activity (Including Resolution Working Groups)

►FACI Meetings (7/22/15; 10/4/15; 5/26/16) ►2015 Annual Report: http://www.treasury.gov/initiatives/fio/reports-and-

notices/Documents/2015%20FIO%20Annual%20Report_Final.pdf

►Comings and Goings and New Roles ►FIO, Treasury and Others Participate in FSAP Review of US by IMF,

Published in April 2015; Technical Note on Resolution System in July 2015

[Organizational Chart Attached]

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Treasury Organization Chart Evolved in 2015 and 2016

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FSOC Under Continued Scrutiny

►Met Life Decision 3/30/16: Judge Collyer rules in favor of MetLife,

rescinds SIFI designation; Treasury Appealing

►Congressional Hearings - - see slide 4 ►Republican Criticism: Transparency and Exit Ramp ►2016 Annual Report: https://www.treasury.gov/initiatives/fsoc/studies-

reports/Documents/FSOC%202016%20Annual%20Report.pdf

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Federal Reserve and FDIC: Capital Standards, OLA and Living Wills

Federal Reserve

►Capital Standards and Other Activity: 6/3/16 Advance Notice of Proposed

Rule Making:

• https://www.gpo.gov/fdsys/pkg/FR-2016-06-14/pdf/2016-14004.pdf
• https://www.gpo.gov/fdsys/pkg/FR-2016-06-14/pdf/2016-14005.pdf

►Continued Fed Influence Through FSB and IAIS

FDIC’s Orderly Liquidation Authority

►FDIC Increasing Its Focus on Insurance ►Single Point of Entry for Insurers as a Key Issue?

Living Wills

►2015 Plans for Living Wills Must Resolve Issues Such as Establishing a Less

Complex Legal Structure and Demonstrating Better Operational Capabilities for Resolution Preparedness

►2016 Second Round of Living Wills of AIG and Prudential

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Members: Independent agency

• f the federal government, led

by a 5 member Board of Directors Mission: Maintain stability and public confidence in the nation's financial system by insuring deposits, examining/supervising financial institutions and managing receiverships International Association of Insurance Supervisors (IAIS) Members: G-20 nations Mission: Monitor and make recommendations about the global financial system Members: Insurance regulators in 190 jurisdictions Mission: Set international standards for insurance supervision

International

Financial Stability Board (FSB)

MEMBER

Members: 56 U.S. state/territory insurance regulators Mission: Standard setting and regulatory support organization for U.S. state/territory insurance regulators Members: Office of the U.S. Treasury Department Mission: Monitor all aspects of the insurance industry and coordinate/develop federal policy on international insurance matters

United States

Members: Central Bank of the U.S., lead by a 5 member Board of Governors Mission: Conduct U.S. monetary policy, supervise banking institutions, maintain the stability of the financial system and contain systemic risk, provide financial services to depository institutions, the U.S. government, and foreign official institutions Members: Voting representatives from federal agencies including Treasury, the Fed, FDIC and independent member with insurance

• expertise. Non-voting

representatives including FIO and a state insurance commissioner Mission: Identify risks and respond to emerging threats to financial stability Federal Reserve Board (the Fed or FRB)

VOTING MEMBER

Federal Deposit Insurance Corporation (FDIC) Financial Stability Oversight Council (FSOC) National Association

• f Insurance

Commissioners (NAIC) Note: As an office within the Treasury Department, FIO participates in some FSB meetings when invited to do so by the Treasury, but is not itself a named member of the FSB. Federal Insurance Office (FIO)

Key Players Impacting Insurance Regulation

A Complex Web of Interactions

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IAIS Advancing Capital Standards: More Worms Turn in 2016

Key Recent and Anticipated Activity

►IAIS Resolution Working Group and LAC ►Stakeholder Meetings in 2015 and 2016 ►Higher Loss Absorbency (HLA) Endorsed by FSB; Adoption by IAIS and G-20,

first version agreed to on 10/15/15 at G-20 Meeting in Turkey Open Issues and Hot Buttons

►Summer 2016 Next Consultation on the International Capital Standard (ICS)

as Part of ComFrame Consultation; Consultation on Resolution Elements of ComFrame and Revised ICPs 12 and 26 Expected this Fall

►Awaiting Word from IAIS Regarding Applicability of LAC to Insurance Groups ►Access, Transparency and Participation Issues: Continuing Concern of

Industry and Congress

►Impact of Recent Federal Reserve Capital Standards Proposal? ►Impact of Brexit?

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The IAIS Three-layer Approach to Standard Setting International Activity Impacting Industry

►Federal/NAIC/State Regulators Involved in Developing International

Standards That Are Coming Home (i.e. to the U.S.) to Roost

►CDAWG Development of Group Capital Standards Driven by International ►June 6 FSB finalized paper entitled “Developing Effective Resolution

Strategies and Plans for Systemically Important Insurers”

►Rating Agencies May Look to International Standards ►Capital Standards May Impact Availability of Company Assets for Growth,

etc.

►Many in Industry/Others Like Recent Federal Reserve Capital Standards

Proposal: What Impact on IAIS?

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ComFrame, ICPs and FSB Make Resolution Issues “Next Big Issue”

Sara Powell 317.237.1186 sara.powell@FaegreBD.com Daniel Lightfoot 202.312.7427 daniel.lightfoot@FaegreBD.com Scott Kosnoff 317.237.1201 scott.kosnoff@FaegreBD.com

Discussion/Questions/Issues

Libby Baney 202.312.7438 libby.baney@FaegreBD.com Josh Andrews 202.589.2819 josh.andrews@FaegreBD.com Kevin Brennan 202.589.2818 kevin.brennan@FaegreBD.com Charlie Richardson 202.312.7487 crichardson@FaegreBD.com Bob Kabel 202.312.7408 robert.kabel@FaegreBD.com Pat Hughes 202.312.7421 pat.hughes@FaegreBD.com Kathleen Rice 574.239.1958 kathleen.rice@FaegreBD.com Frank Swain 202.312.7416 frank.swain@FaegreBD.com Mike Adelberg 202.312.7464 michael.adelberg@FaegreBD.com

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