insurance industry: We’re not AIG!
Insurance companies are preparing for a new way of regulatory life in Washington, and they’re lobbying hard to make it as comfortable as possible.
Their message for policymakers: We are not American International Group.Continue Reading
The near failure and then taxpayer rescue of AIG during the 2008 financial crisis put big insurance companies on Washington’s radar, which resulted in the 2010 Dodd-Frank law requiring greater oversight of the industry. Now the industry is trying as much as possible to separate itself in the eyes of regulators and lawmakers from AIG and the risky activities that almost brought down the firm in order to blunt the impact of new rules.
It can be a tough sell.
“They’re afraid of being seen as too soft and letting another AIG happen in the future,” Kimberly Olson Dorgan, senior executive vice president of public policy for the American Council of Life Insurers, said of policymakers.
The industry, which has long been state-regulated, knows it is going to have to live with more oversight on the federal level and abroad.
So it has been busily working to make sure the new regulatory world for insurance is not a carbon copy of the regime that oversees banks.
To that end, insurance companies and trade groups are meeting with federal officials, getting sympathetic lawmakers to pressure regulators and working international meetings in an attempt to influence the new rules that are being finalized.
“It’s a combination of us spending more and reallocating,” said Leigh Ann Pusey, president of the American Insurance Association, which represents property-casualty insurers. “Part of it is just changing your focus, or expanding that focus.”
Much of the attention is on which insurers will be deemed important to the smooth running of the financial system and therefore subject to greater regulatory scrutiny.
In the United States, the Financial Stability Oversight Council will decide who gets the systemically important tag, something that could happen within weeks. With the tag come new rules and oversight by the Federal Reserve.
Insurers, including AIG and possibly Prudential and MetLife, will be the first set of firms outside the banking industry that FSOC deems as systemically important.
MetLife has aggressively opposed the designation in public, unlike Prudential, which has kept a lower profile, and AIG, which is resigned to the designation.
MetLife Chief Executive Officer Steven Kandarian has made trips to Washington this year to meet reporters and speak out at the U.S. Chamber of Commerce against the notion that traditional life insurance poses a risk to the financial system and economy.
He hits on a theme pushed by insurance lobbyists in Washington and abroad: Regulators should focus on nontraditional insurance activities, like AIG’s credit default swaps, rather than the basics of the business.
“AIG’s life insurance subsidiaries did not cause the company’s financial distress,” Kandarian said in a speech at the Chamber last week. “They were victims of it.”
Prudential continues to argue that it does not meet the criteria for a systemic designation and has had executives including its CEO meet with regulators for several months to talk about the company, a Prudential spokesman said.
“Our aim has been to be helpful and cooperative in an effort to achieve a regulatory outcome that makes sense for our industry and the millions of clients who rely on our products and services,” he said.
AIG declined to comment.
Advocates of financial reform, however, are warning against going too soft on insurance companies even if they aren’t engaging in the type of activities that nearly sank AIG.