Too-big-to-fail fund will lead to premium hikes, say insurers

Life insurers are concerned that legislation the House Financial Services Committee is likely to approve after Thanksgiving will increase costs substantially for the 28 carriers that have assets of more than $50 billion.
An amendment from Rep. Brad Sherman, D-Calif., added to the Financial Stability Improvement Act Thursday, would raise the asset threshold for companies that come under systemic risk regulation to those with more than $50 billion. Under a previous version of the bill, companies with more than $10 billion would have come under systemic risk regulation.
The covered companies would have to pay into a new $150 billion fund administered by the Federal Deposit Insurance Corp. The fund would cover the cost of taking over failed financial institutions that pose a threat to the broader economy.
While raising the threshold means fewer companies would have to pay into the new fund, the large companies that would be covered would have to pay more. “It increases the burden on those companies that are captured at that $50 billion level,” said Jack Dolan, spokesman for the American Council of Life Insurers.
That will raise costs for policyholders, he said. “That makes financial and retirement security more difficult to achieve because of the higher costs it places on consumers for life insurance products and services.”
“They have a good argument, and we’ve partially dealt with it,” Mr. Sherman said of the insurance industry’s concerns.
The California Democrat pointed out that, under the bill, regulators are instructed on how to make the assessments. “Guidance is provided to them on whom to assess heavy and whom to assess light,” he said. “Those entities that are paying into guarantee or insurance funds are supposed to get the light.”
Nevertheless, insurers oppose being brought under systemic risk regulation. The FDIC “has a built-in bias to its own constituency,” Mr. Dolan said.
The insurance industry is concerned that forcing large life insurers to pay into the new fund would create an additional layer of expenses. Life insurers already pay into state guarantee funds to cover the cost of insurance company failures in the states where they operate.