On January 18, the banking regulators released an interagency statement on the accounting and reporting implications of the newly enacted tax law (the “Act”). The statement briefly described the Act’s impact on Deferred Tax Assets (DTAs) and Deferred Tax Liabilities (DTLs), noting the GAAP requirement to reflect the valuation impact in the period in which the legislation is enacted.
The statement also briefly addressed the impact that the change to the net operating loss (NOL) carryback rules will have on regulatory capital.
The regulators noted that the statement does not represent new rules or regulations. Also, it did not appear to have any direct implications for BOLI.
On January 3, the FDIC announced that the FFIEC had approved the implementation of burden-reducing revisions previously proposed (FIL-24-2017). The revised reporting requirements will take effect as of March 31 or June 30, 2018, depending on the change.
As we reported in our June 2017 LRA Update, the line items related to BOLI are not changed or impacted by these revisions.
On December 27, the NY DFS announced new proposed regulations that, if enacted, would require that life insurance and annuity sales meet a “Best Interest” standard. The NY proposal uses a definition of “best interest” that is similar to the DOL fiduciary rule’s description (i.e., that a recommendation is made “without regard to” the financial or other interests of the producer, insurer or other party).
As currently drafted, transactions involving NQDC arrangements established or maintained by employers are exempted from the proposed rule. However, the rule would appear to include BOLI where the transaction does not involve NQDC. A major insurance company has told us that the ACLI and LICONY are already lobbying for a broader exemption for institutional products similar to an exclusion granted under NY’s Non-Guaranteed Elements regulation we recently reported.
Separate from the NY DFS, the NAIC has established an Annuity Suitability Working Group. This working group has released an exposure draft to modify Model Regulation #275, which relates to Annuity Suitability rules. This proposal includes implementing a “best interest” standard as well. There are some differences between the NAIC’s proposed standard and the NY DFS proposed standard. Notably, the NAIC standard being considered does not currently encompass life insurance. The NY DFS has submitted a comment letter urging the NAIC to use the proposed NY regulation as the base for a model law in this area.
We have long been advocates for fiduciary standards and believe such rules and regulations to be in the best interests of the entire industry, not just consumers. Hopefully, these regulations get enacted with the strongest possible standards of producer conduct and the least exemptions and exclusions possible. Matt Schoen made his case for greater disclosure and transparency of compensation in an opinion piece available on our website.
On January 23, the U.S. Court of Appeals for the District of Columbia Circuit dismissed the Financial Stability Oversight Council’s (FSOC) appeal of the district court decision rescinding MetLife’s designation as a non-bank systemically important financial institution (SIFI). FSOC and MetLife jointly filed the motion to dismiss, and also agreed to file a motion asking the district court to vacate the portion of its opinion concluding that FSOC failed to undertake the required cost-benefit analysis when designating MetLife.
With this decision, Prudential remains the only non-bank SIFI; however, it has been reported that Prudential may be seeking to overturn its designation. FSOC rescinded AIG’s SIFI designation in September 2017.
On January 30, Treasury Secretary Steven Mnuchin testified before the Senate Banking Committee on the FSOC’s 2017 annual report. Senator Mike Crapo (R-Idaho) remarked that he was critical of the lack of transparency and analytic rigor of FSOC’s process for designating non-bank SIFIs. During the hearing, Steven Mnuchin acknowledged that the non-bank SIFI identification process should be more transparent and indicated that companies should be given more information concerning how the process works.