Dodd-Frank Act

Question 1

how Dodd-Frank Act increased federal reach into the insurance industry (3)

Answer 1

• gave limited regulatory authority to the Federal Reserve (Fed)
• formed the Federal Insurance Office (FIO)
• authorized Fed and FIO to act internationally

Question 2

types of insurers under Fed authority (2)

Answer 2

• systemically important financial institutions (SIFIs)

* holding companies with banks or thrifts

Question 3

why designation of insurers as SIFIs is controversial (5)

Answer 3

• additional regulation is burdensome
• banks and insurers have different business models
• insurers made minimal contribution to the financial crisis
• criteria for SIFI designation is unclear
• international groups seem to be driving the designation

Question 4

requirements for insurers regulated by Fed (4)

Answer 4

• develop living wills in case of bankruptcy
• meet liquidity requirements
• undergo stress testing
• meet capital standards

Question 5

concerns about Fed authority (3)

Answer 5

• banking-influenced regulations shouldn’t apply to insurers since business models are different
• Fed is too sensitive to international concerns
• Fed and Financial Stability Oversight Committee (FSOC) face a learning curve understanding reserving and actuarial judgment

Question 6

functions of FIO (7)

Answer 6

• aggregate insurance information
• identify insurance activities that could contribute to a systemic financial crisis
• develop federal policy on national or international insurance issues
• consult with state governments on insurance matters
• monitor affordability and availability of insurance
• negotiate covered agreements with foreign regulators
• assist Secretary of Treasury in administration of TRIA

Question 7

actuaries’ concerns over Dodd-Frank Act (5)

Answer 7

• dual regulation at state and federal level could create new accounting and solvency standards
• additional federal regulation could be overly restrictive and expensive to follow
• capital requirements could increase
• standardization requirements drive commoditization, reducing competitive advantage and profit margins
• regulation of banks could be expanded, increasing compliance costs for insurers that own banks

Question 8

arguments of federal regulation advocates (3)

Answer 8

• greater consistency in domestic and international standards
• international community is pressuring U.S. to grow its regulatory role
• more centralized power gives more regulatory power

Question 9

arguments of federal regulation critics (4)

Answer 9

• FIO’s approach is not transparent
• higher costs, less product innovation, and fewer options for consumers
• insurers could be forced to consolidate
• state regulators face higher accountability since they are appointed or elected