24 th Annual NOLHGA Legal Seminar July 21, 2016 Washington, D.C. The Changing Shape of International Regulatory Modernization and Progress in 2016 and Beyond 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 2
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 3 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) • 4
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] 5 Treasury Organization Chart Evolved in 2015 and 2016 6
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 7 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 8
Key Players Impacting Insurance Regulation A Complex Web of Interactions National Association of Insurance United States International Commissioners (NAIC) Members: 56 U.S. state/territory insurance regulators Federal Deposit Mission: Standard setting and Financial Stability Insurance regulatory support organization Board (FSB) Corporation (FDIC) for U.S. state/territory insurance regulators Members: G-20 nations Members: Independent agency of the federal government, led Federal Reserve VOTING MEMBER Mission: Monitor and make by a 5 member Board of Board recommendations about the Directors (the Fed or FRB) global financial system MEMBER Mission: Maintain stability and Members: Central Bank of the U.S., public confidence in the nation's lead by a 5 member Board of financial system by insuring Governors deposits, examining/supervising International financial institutions and Mission: Conduct U.S. monetary managing receiverships policy, supervise banking institutions, Association of Financial Stability maintain the stability of the financial Insurance Oversight Council system and contain systemic risk, Supervisors (IAIS) (FSOC) provide financial services to Members: Insurance depository institutions, the U.S. Members: Voting representatives regulators in 190 jurisdictions government, and foreign official from federal agencies including institutions Treasury, the Fed, FDIC and Mission: Set international Federal Insurance Office independent member with insurance standards for insurance expertise. Non-voting (FIO) supervision representatives including FIO and a state insurance commissioner Members: Office of the U.S. Note: As an office within the Treasury Department Treasury Department, FIO Mission: Identify risks and respond participates in some FSB to emerging threats to financial Mission: Monitor all aspects of the meetings when invited to do so by stability insurance industry and the Treasury, but is not itself a coordinate/develop federal policy on named member of the FSB. international insurance matters 9 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? 10
The IAIS Three-layer Approach to Standard Setting 11 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? ComFrame, ICPs and FSB Make Resolution Issues “Next Big Issue” 12
Discussion/Questions/Issues Mike Adelberg Josh Andrews Libby Baney Kevin Brennan 202.312.7464 202.589.2819 202.312.7438 202.589.2818 michael.adelberg@FaegreBD.com josh.andrews@FaegreBD.com libby.baney@FaegreBD.com kevin.brennan@FaegreBD.com Pat Hughes Bob Kabel Scott Kosnoff Daniel Lightfoot Sara Powell 317.237.1201 317.237.1186 202.312.7421 202.312.7408 202.312.7427 pat.hughes@FaegreBD.com robert.kabel@FaegreBD.com scott.kosnoff@FaegreBD.com daniel.lightfoot@FaegreBD.com sara.powell@FaegreBD.com Frank Swain Kathleen Rice Charlie Richardson 574.239.1958 202.312.7487 202.312.7416 kathleen.rice@FaegreBD.com frank.swain@FaegreBD.com crichardson@FaegreBD.com 13
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