House Ways and Means Chairman Brady Release Tax Reform 2.0 Framework
On July 24, House Ways and Means Committee Chairman Kevin Brady (R-TX) released a listening session framework for “Tax Reform 2.0.” The framework identifies a handful of priorities, including making the individual and small business tax cuts permanent, increasing tax incentives for retirement savings, and furthering incentives for start-up businesses through expanded ability to write off more initial start-up costs.
It is currently anticipated that the House may vote on tax legislation in September (in advance of the mid-term elections), but the Senate is not expected to consider any significant tax legislation.
Economic Growth, Regulatory Relief, and Consumer Protection Act – Interagency Statement
On July 6, the FRB, FDIC, and OCC jointly released a statement covering various impacts of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which was enacted on May 24. In the statement, the agencies describe positions they will take regarding provisions of the EGRRCPA until they formally amend applicable regulations. Among several topics discussed, we consider the following items to be potentially noteworthy:
- Company-run stress testing: As stated in the legislation, bank holding companies (BHCs) with less than $100 billion in total consolidated assets are exempt from the requirement of company-run stress testing immediately, while non-BHCs (e.g., depository institutions) with total consolidated assets less than $250 billion will be exempt from the requirements eighteen months following enactment (i.e., November 25, 2019). To maintain consistency between BHCs and depository institutions with less than $100 billion of assets, the agencies are using their discretion to extend the deadlines for company-run stress testing requirements for depository institutions with less than $100 billion in total assets to November 25, 2019. At that time the broader exemption (for firms with less than $250 billion in assets) will take effect. We interpret this regulatory position as immediately removing company-run stress testing requirements for any institutions (BHCs or depository institutions) with less than $100 billion in total assets.
- Municipal Obligations as High-Quality Liquid Assets (HQLA): As required by the statute, the agencies intend to engage in rulemaking to allow certain municipal obligations to qualify as HQLA. In anticipation of implementing these changes through rulemaking, the agencies clarified that they will not take action to require an institution subject to the liquidity regulations to exclude from the definition of HQLA municipal obligations that it believes meet the statutory criteria for inclusion in HQLA.
NAIC Continues to Review ICOLI Regulations
As we have been reporting in prior months, the NAIC’s Statutory Accounting Principles (E) Working Group has been evaluating the regulatory treatment of Private Placement Variable Annuities (PPVA) and Private Placement Life Insurance (PPLI). Last month, we submitted a comment letter to the NAIC in an effort to better inform the staff’s deliberations.
In advance of the NAIC’s Summer National Meeting in Boston on August 4, the NAIC staff has released updated materials on this topic, including a summary of the comment letters received and modified recommendations for the Working Group. The NAIC staff noted that it was “most supportive of the comments received from MBSA, as these comments identify the need to consider the quality of the underlying assets held via the “wrapping” insurance product for admittance purposes as well as assessments for RBC.”
The NAIC staff is proposing to adopt or re-expose revisions to SSAP No. 21, paragraph 6. The latest proposed changes to this paragraph
- Maintain the addition of a requirement that any products considered under the paragraph must comply with IRC § 7702;
- Remove the previously suggested addition that a reporting entity must not be subject to investment risk under the product; and
- Add a general disclosure requirement that would report the cash surrender value by investment category (e.g., bonds, common stock, joint ventures, derivatives, etc.).
In general, we agree that the net realizable value of ICOLI products should be an admitted asset. We also think this type of disclosure requirement is a good first step toward evaluating whether additional regulation would be prudent (i.e., depending on the overall composition and materiality of the asset classes within such products owned by insurers).
NY DFS Issues Final Version of Life Insurance and Annuity “Best Interest” Standard
On July 18, the NY Department of Financial Services issued a press release stating that it had issued a final regulation [Insurance Regulation 187] adopting a “best interest” standard for those licensed to sell life insurance and annuity products. The new regulation requires insurers to establish standards and procedures to supervise recommendations by agents and brokers to consumers with respect to life insurance policies and annuity contracts issued in New York State so that any transaction with respect to those policies is in the best interest of the consumer and appropriately addresses the insurance needs and financial objectives of the consumer at the time of the transaction.
The regulation appears to apply to any transaction or recommendation to purchase or replace an annuity contract or in-force policy. As we reported previously, this regulation specifically excludes several products and transactions from its scope. Among the exemptions:
- A policy used to fund a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor; and
- Any corporate or bank owned policy authorized by Insurance Law section 3205(d) where substantially all benefits under the policy are payable to the corporate or bank policy owner.
It is not clear to us whether split-dollar arrangements would be subject to the regulation or if they are excluded under one of the above exemptions.
The final rule will become effective on August 1, 2019, and six months from the effective date, insurers and producers shall comply with the requirements for any transaction with respect to life insurance policies.
Social Security Administration Announces Schedule for Release of Additional Records – Update
As a follow up to a previous LRA update, on July 26 the Social Security Administration (SSA) announced a reduction to the projected death records that will be added to the publicly available Limited Access Death Master File (LADMF) on August 4. The SSA announced that 700k additional records will be added, down from an original projection of slightly more than 1 million. To date, approximately 7 million records have been added in 2018.