Apart from a fundamental disagreement between the parties as to whether the ACA should be
repealed and replaced, insurance regulatory issues did not play a large role in the Presidential campaign. That does not mean, however, that President Trump will not make significant changes in how the federal government interacts with state insurance regulators. Here are some examples of where changes may come.
Non-bank “systemically important financial institutions”
Candidate Trump vowed to dismantle the Dodd-Frank Act and he met last Thursday with Representative Jeb Hensarling, the Chairman of the House Financial Services Committee, who has introduced legislation to do just that. (Chairman Hensarling, a very close friend of Vice President-elect Pence, is rumored to be one of the leading candidates to become the Treasury Secretary.) Among the Dodd-Frank provisions likely to be substantially changed, if not outright repealed, is Section 113, giving the Federal Financial Stability Oversight Council (FSOC) broad latitude to designate particular non-bank financial institutions as “systemically important” and thereby subject to Federal Reserve supervision. Three US insurers have so far been designated: AIG, Prudential and MetLife. MetLife sued in federal district court to overturn its SIFI designation and, earlier this year, succeeded in obtaining summary judgment, largely on the grounds that the FSOC arbitrarily applied the wrong criteria and failed to conduct the requisite cost-benefit analysis before designating MetLife as systemically important. (MetLife, Inc. v. Financial Stability Oversight Council, ___ F.Supp. ___, No. 15-0045 (RMC) 3/30/16).
Given the new President’s position on Dodd-Frank, the future of the other SIFI designations is also in doubt. It is possible that the Justice Department in a Trump administration will simply withdraw the government’s appeal to the DC Circuit Court of Appeals in the MetLife case. How the Federal Reserve will handle its oversight of Prudential and AIG is unclear. In any event, it seems highly unlikely that there will be any additional SIFI designations of insurers going forward—a prospect that most state insurance commissioners, of both parties, will applaud, as it will reinforce the primacy of state-based solvency regulation.
Reinsurance credit covered agreement with EU
There is a good chance that whoever will be running the Treasury Department in a Trump administration has not given much thought to the negotiations currently underway between the Federal Insurance Office (FIO), established by Dodd-Frank, and the EU to relax US credit for reinsurance rules imposed on unlicensed foreign reinsurers. The current FIO director, former Illinois Director of Insurance Michael McRaith, who was appointed by President Obama’s first Treasury Secretary, is unlikely to stay on to work under the incoming Secretary. It’s unclear whether the FIO/EU talks on relaxing US credit for reinsurance rules imposed on unlicensed foreign reinsurers will even continue in the next administration, let alone whether the Trump administration will override existing state rules requiring those reinsurers to secure all of their liabilities to US ceding companies. Dodd-Frank authorizes the FIO to execute multinational agreements on insurance regulations and, after a lengthy process of consultation with states and Congress, to declare state laws that conflict with the agreement to be preempted. (31 U.S.C. §313-314).
Although some US states, New York and California among them, have already relaxed their respective rules to permit highly rated reinsurers to collateralize only a portion of the liabilities, and although the NAIC has adopted a Model Law along the same lines, numerous states still require full collateral to be posted by unlicensed reinsurers. One would not expect President Trump, who campaigned on a promise of less federal regulation and who is plainly wary of international agreements of almost any sort, to support reinsurance rules created and enforced in Washington as part of a multinational agreement. Thus, it would not be surprising if the current negotiations with the EU on reinsurance stall and, ultimately, wither and die.
