The Financial Stability Oversight Council – the college of regulators established by the Dodd-Frank Act as the ultimate overseers of systemic financial risk – last month reissued proposed rules governing how they will designate which non-bank financial institutions will be designated systemically important.
FSOC is proposing a three-stage process that begins by screening for firms with more than $50 billion in U.S. assets and that meet certain object debt, leverage or derivative exposure metrics. In stages two and three, the council would subject firms to more extensive company-specific inquiries into the businesses in which they operate, how interconnected they are and how easily other firms might step into the void should a firm fail.
Rating agency Moody’s Investor Service has estimated that, based on the initial definitions, MetLife Inc., Prudential Financial and American International Group are the only insurers likely to make it past the first stage of the process. But a general lack of clarity remains about the extent to which insurance firms will be included under the rules, particularly since they were largely formulated before two of the FSOC’s three insurance-related seats were filled.
In this week’s edition of the FIRE Podcast, we talk to Robert Gordon, former long-time senior insurance counsel to the House Financial Services Committee and now a senior vice president with the Property Casualty Insurers Association of America, about the proposed “SIFI” rules and why PCI feels property and casualty insurers should not be judged systemically risky.