The landmark Dodd-Frank Wall Street Reform and Consumer Protection Act includes provisions that will affect the business of insurance companies. Some of those provisions, contained in Title V of the Dodd-Frank Act, follow.

Federal Office of Insurance. Establishes the Office of National Insurance within the Department of the Treasury to monitor and regulate insurance issues that have national implications. The primary functions of this Federal Insurance Office will be to:

    • Monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system

    • Monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance (except health)

    • Recommend to the Financial Stability Oversight Council if an insurer is an entity subject to regulation as a nonbank financial company supervised by the Board of Governors under the Dodd-Frank Act

    • Assist the Secretary in administering the Terrorism Risk Insurance Program, implemented by the Department of the Treasury

    • Coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters, including representing the United States, as appropriate, in the International Association of Insurance Supervisors and assisting the Secretary in negotiating covered agreements with foreign jurisdictions

    • Determine whether state insurance measures are preempted by covered agreements between the United States and foreign jurisdictions

    • Consult with the states regarding insurance matters of national importance and prudential insurance matters of international importance

The Federal Insurance Office has the authority to exempt, by regulation, small insurers from compliance with these new laws. The Federal Insurance Office will have the authority, subject to due process requirements, to preempt state insurance measures that result in less favorable treatment of a non-U.S. insurer that is subject to a covered agreement with the United States.

The Dodd-Frank Act calls for the Federal Office of National Insurance to prepare a number of reports:

  • Annual report to Congress on any preemption actions taken (first by September 30, 2011)

  • Annual report on the state of the insurance industry (first by September 30, 2011)

  • A report describing the U.S. and global reinsurance markets (September 30, 2012)

  • Review of "Nonadmitted Reinsurance and Reform Act" provisions of the Dodd-Frank Act on the ability of state regulators to access reinsurance information for insurers in their jurisdictions (first due by January 1, 2013, and updated by January 1, 2015)

  • Study on how to modernize and improve insurance regulation in the United States (due 18 months after effective date of Dodd-Frank Act)

Nonadmitted insurance. Prohibits any state, other than the home state, from charging premium tax for nonadmitted insurance. These provisions, titled the "Nonadmitted Reinsurance and Reform Act of 2010," will become effective 12 months after the effective date of the Dodd-Frank Act. Under these provisions:

  • States can enter into compacts to allocate income from premium taxes imposed by the home state on nonadmitted insurance

  • Surplus line brokers and insureds will be required to deliver reports to assist in the allocation of such premium tax income

  • Placement of nonadmitted insurance and surplus line broker licensing will be handled by the insured’s home state

  • A state cannot collect licensing fees from surplus line brokers unless the state has in effect NAIC-compliant surplus line broker regulations (effective two years after effective date of the Dodd-Frank Act)

Workers' compensation insurance is not affected by these provisions of the Dodd-Frank Act.

Reinsurance. These provisions provide a domicile state with primacy for the regulation of reinsurance activities by ceding insurers in their state. If the domicile state of a ceding insurer is a NAIC-accredited state, or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, and recognizes credit for reinsurance for the insurer's ceded risk, then no other state may deny such credit for reinsurance. Under this portion of the Dodd-Frank Act:

    • As long as the domicile state has NAIC-compliant rules, other states cannot:

        • Restrict or eliminate the rights of the ceding insurer or the assuming insurer to resolve disputes pursuant to contractual arbitration
        • Require that another state's law govern the reinsurance contract, disputes arising from the reinsurance contract, or requirements of the reinsurance contract
        • Attempt to enforce a reinsurance contract on terms different than those set forth in the reinsurance contract
        • Otherwise apply the laws of the state to reinsurance agreements of ceding insurers not domiciled in that state

    • Financial Solvency of Reinsurers. If the domicile state of a reinsurer is a NAIC-accredited state or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, such state shall be solely responsible for regulating the financial solvency of the reinsurer.

        • Other states cannot require additional financial solvency information.
        • The Dodd-Frank Act establishes protections against reinsurance credit denial for domicile states with NAIC compliant financial solvency requirements.

    All insurance other than health, certain long-term care, and crop insurance will be subject to the Dodd-Frank Act. Health and applicable long-term care insurance will continue to be regulated under the auspices of the U.S. Department of Health and Human Services.

    Ballard Spahr's Financial Institutions Reform Task Force will continue to monitor these and other portions of the Dodd-Frank Act, and its members are available to assist clients as they prepare to address the new requirements. Please feel free to contact Douglas Y. Christian, 215.864.8404 or christiand@ballardspahr.com; Justin P. Klein, 215.864.8606 or kleinj@ballardspahr.com; or Mary J. Mullany, 215.864.8631 or mullany@ballardspahr.com.

    Return to the Dodd-Frank Act Brings Sweeping Regulatory Changes alert.

     


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