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Perspectives

CHOICE Act: Expected impact to insurance regulation

Potential changes to Dodd-Frank regulations

Following House passage of the Financial CHOICE Act of 2017 on June 8, 2017 and the President Trump’s April 2017 directives to the Treasury Secretary to review aspects of Dodd-Frank—including the Orderly Liquidation Authority and the Financial Stability Oversight Council’s (FSOC) systemically important financial institution (SIFI) designation process—some clarity on the future direction of federal financial services regulation is emerging.

Introduction

It now seems apparent that both the executive and legislative branches of government will attempt to execute on the announced intent of several members of the new administration and influential members of Congress to make significant changes to the existing financial services regulatory framework, including the laws and regulations applicable to insurance companies. These changes primarily target new or increased regulatory powers enabled by Dodd-Frank.

House Financial Services Committee Chairman Jeb Hensarling (R-TX) has said that Dodd-Frank “has been a greater burden to enterprise than all other Obama-era regulations combined” and expressed his intent to repeal and replace major components of the law, such as the authority of the FSOC to designate nonbank financial institutions, including insurance companies, as SIFIs.

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Leading legislative proposal: Financial CHOICE Act

The CHOICE Act may be the most ambitious financial regulatory reform legislative proposal. Although the majority of analyses related to the CHOICE Act have focused on the bill’s implications for large banking organizations, the legislation would establish important changes for insurance companies, particularly large insurers.

Even if the Senate is not able to pass the CHOICE Act as adopted by the House or creates its own financial services regulatory reform bill, these provisions represent the position of House Republicans on major insurance regulatory issues, and signal the possible direction of future efforts to amend the insurance regulatory framework.

As such, it remains important that insurance companies—especially internationally active insurance groups that may be affected by international agreements—carefully analyze the CHOICE Act and understand how they could be impacted by these changes.

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Additional past and pending insurance legislation

In addition to the insurance-related provisions of the CHOICE Act, it remains possible that Congress will consider stand-alone legislation that would affect the insurance industry.

Following the 2014 enactment of a bill unanimously passed by the House and Senate to clarify the application of leverage and risk-based capital requirements to insurance companies under Section 171 of Dodd-Frank (the so-called “Collins Amendment”), there has been increasing bipartisan support for other insurance-related legislation.

In April 2017, Representative Sean Duffy (R-WI), Chairman of the House Financial Services Housing and Insurance Subcommittee, and Representative Denny Heck (D-WA) released a discussion draft of a bill (the International Insurance Standards Act) that proposes to treat international insurance agreements and covered agreements as rules for the purposes of the Congressional Review Act.

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