Monthly LRA Update

LEGISLATIVE DEVELOPMENTS

House and Senate Approve Separate Budget Resolutions

In February the House (H.Con.Res.14) and Senate (S.Con.Res.7) each approved budget resolutions. The resolutions are materially different. The House version is more ambitious, including approval of net tax cuts of $4.5 trillion over 10 years if Congress achieves $2 trillion in spending cuts.

The Senate version addressed specific funding priorities, including domestic energy production, defense spending, and border funding. Under the Senate approach, broader tax policy changes would be addressed in a second budget resolution.

In order for legislation to avoid filibuster and advance via a simple majority, the House and Senate must adopt identical budget resolutions. If the Senate is persuaded to adopt the House’s approach, legislation to address expiring TCJA provisions will likely accelerate.

REGULATORY DEVELOPMENTS

Federal Reserve Vice Chair for Supervision Speech

On February 20 Michael Barr (Vice Chair for Supervision) delivered a speech at Georgetown University regarding risks and challenges for bank regulation and supervision. Mr. Barr recently announced that he would step down as Vice Chair for Supervision effective February 28. He will remain a member of the Board of Governors.

He supports completion of Basel III reforms and believes new liquidity standards would be helpful. He also expressed support for the FRB’s annual stress test regime and cautioned about problems that could arise with increased transparency and deliberation.

OTHER DEVELOPMENTS

NAIC Executive Committee Launches Risk-Based Capital Task Force

On February 20 the NAIC announced the creation of a task forced aimed at guiding future adjustments to the risk-based capital (RBC) framework, along with a comprehensive gap analysis in the current framework.

Wisconsin Insurance Commissioner Nathan Houdek noted that the low-interest rate environment following the financial crisis has resulted in insurers having more complex investment portfolios – including more liquidity risk. Houdek mentioned the opportunity to enhance RBC while also reinforcing the global competitiveness of the U.S. RBC framework.The press release also reiterates a commitment to the principle of “Equal Capital for Equal Risk.” As noted in our September 2023 LRA, the NAIC Financial Condition (E) Committee indicated support for ongoing efforts to improve the consistency of RBC factors for insurer investments.