Presentation at 2011 SOA annual meeting in Chicago. I presented on Dodd-Frank Financial Reform and recent updates.

1. An Actuarial Update on
the Dodd-Frank Act
SOA Annual Meeting in Chicago
Session 91: Hot Topics
Tuesday, October 18, 2011
Michael Frings, FSA, CFA, MAAA
Vice-President and Senior Actuary
Global Financial Solutions
RGA Reinsurance Company

2. Presentation Agenda
 Describe events giving rise to Dodd-Frank Act
 Outline significant provisions of Dodd-Frank
 Review key sections impacting actuaries and
insurance companies
 Update on status of Dodd-Frank implementation
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3. Events Preceding Dodd-Frank Act
 Outsized, Unregulated OTC Derivatives Market
 Bank of International Settlements data
 2008 Collapse of Wall-Street Banks
 Lehman, Bear-Sterns, Morgan Stanley
 Record Number of Home Foreclosures
 Unprecedented US Govt Support & Spending
 Backstop banks and money-market funds
 Bailouts of GM, AIG, Chrystler, etc. etc.
 World-Wide Financial Crisis
 Iceland, Ireland, Greece
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4. Voilà, the Dodd-Frank Act (DFA)
 Officially, the Wall-Street
Accountability and
Consumer Protection
Act of 2010
 Signed into law July 21,
2010
 Created in response to
2008 Financial Crisis
 DFA written broadly
 Much of rulemaking left
to regulators
 10 Sections 4

5. Financial Stability: Sections I – VIII
 I. Financial Stability
 Creates FSOC & OFR, Add’l authority to FRB
 II. Orderly Liquidation Authority
 III. Transfer of Powers to the Comptroller of the Currency, SEC
and FRB
 IV. Regulation of Advisors to Hedge Funds and Others
 V. Insurance
 FIO, State-based ins reform, Non-admitted insurance, Reinsurance
 VI. Improvements to Regulation of Bank and Savings
Association Holding Companies and Depository Institutions (40
pages)
 VII. Wall Street Transparency and Accountability Act
 Reg of OTC swaps markets, Reg of security based swap markets
 VIII. Payment, Clearing and Settlement Supervision
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6. Investor Protections, Consumer
Protections, Mortgage Reform
 Title IX. Investor Protections and Improvements to
the Regulation of Securities
 Title X. Bureau of Consumer Financial Protection
 Title XIV. Mortgage Reform and Anti-Predatory
Lending Act
 Miscellaneous
 XI. Federal Reserve System Provisions
 XII. Improving Access to Mainstream Financial Institutions
 XIII. Pay It Back Act
 XV. Miscellaneous Provisions
 XVI. Section 1256 Contracts
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7. Changes to Roles of Regulators
• The Dodd-Frank Act expands the roles of the US
Treasury, Federal Reserve, CFTC and SEC
• The Office of Thrift Supervision is eliminated
– Authority split among the Comptroller of the Currency, SEC and
the Federal Reserve
• Prudential Regulators Keep Their Authority
• New Regulators are created
– Federal Stability Oversight Council (FSOC)
– Consumer Financial Protection Bureau (CFPB in Federal
Reserve)
– Federal Office of Insurance (FIO in US Treasury)
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8. FSOC Key Responsibilities
 Designate specific companies as ―systemically important‖
financial institutions (SIFI)
 Instruct Federal Reserve to impose measures to regulate
SIFIs
 Permit the Federal Reserve, in extreme cases, to order
companies to divest assets (or to be broken up)
 Collect information from other regulators (federal & state)
 Identify regulatory gaps
 Identify other threats to US financial stability
 Facilitate cooperation and resolve disputes among
regulators
 Monitor US financial markets: integrity, efficiency and
competitiveness
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9. FSOC Members
VOTING MEMBERS NON-VOTING MEMBERS
Selected State
Office of Insurance
Financial Commissioner
Research
(in US (John Huff-MO)
Treasury)
Bureau of
Consumer
Financial Selected State
Protection Banking
Federal
Insurance Supervisor
Office
(in US
Treasury)
(Michael Selected State
McRaith
Securities
Commissioner
Independent
Member with
Insurance
Experience 3 Insurance Members
(Roy Woodall)
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10. Federal Insurance Office (FIO)
 First, and only, federal insurance body charged to
 Provide national coordination of the insurance sector
 Identify system-threatening gaps in insurance regulation
 Identify, to the FSOC, any insurer that is systemically important
 Coordinate & develop federal policy on prudential aspects of int’l
insurance
 Monitor extent to which communities/groups are underserved in
access to affordable insurance, excluding health insurance.
 Interact with state insurance authorities
 Consultation on all insurance matters of national importance
 Consultation on prudential insurance matters of international
importance
 Determination of federal override of state law on issues affecting
international competition and regulation
 Determine state insurance matters to be pre-empted by covered
agreements 10

11. Federal Insurance Office (FIO)
 Includes Life, P&C. Excludes health insurance, some
LTCi and crop insurance.
 Housed within the Treasury Department which will
provide most of the staffing
 Headed by a Director who:
 Reports directly to the Treasury Secretary
 Attends FSOC, but does not vote
 Annual Report on the US insurance industry and FIO
actions
 Special report within 18 months of enactment on
modernization of US insurance regulation
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12. DFA Eases Rules on Reinsurance
 Ceding insurer’s state of domicile now regulates
 Credit for reinsurance, if NAIC accredited or similar
 Other states can’t impose rules for reinsurer credit and
must accept credit granted by cedant’s state of domicile
 Non-US domiciled reinsurers may receive similar benefit
 Dispute resolution
 Choice of law
 Imposing standard terms differing from contract
 Reinsurer’s state of domicile still regulates
 Reinsurer solvency, if NAIC accredited
 Other states can’t require additional financial info
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13. Actions After Dodd-Frank Act
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14. 14

15. 15

16. 16

17. Recent Activity
 Government is busy writing regulations and performing
studies as directed to do under DFA
 Special interest groups are busy lobbying
 As of Oct 3rd, per Davis Polk, DFA requires 300 rules and
87 studies
 64 finalized, 28 proposed but not due, 163 future deadlines,105
missed but proposed, and 21 missed not proposed
 In total, 163 rules have passed deadlines, of those 37 are now final
 41 of the 87 studies are complete
 Notable final rules
 Swap Data Repositories, Removal of Securities Ratings from Rules
and Forms, Truth in Lending, Increase in Maximum FDIC
 Left to be done
 Frankly, a great deal…
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18. Systemically Important Financial Institution
 On Oct 11th, FSOC exposed proposed rule with 3 Stage
Test
 Stage 1: Meets 1) and one of 2) – (6)
1) $50B+ global assets for US nonbank fin cos or $50B+ US
assets for foreign nonbank fin cos
2) $30B+ in gross notional CDS
3) $3.5B+ in ASC 815 derivative liabilities
4) $20B+ in O/S loans borrowed and bonds issued
5) Leverage ratio of 15:1 or greater
6) Ratio of short-term debt (<12 mos) to total assets of 10% or
greater
 Stage 2: Further scrutiny of primarily public and regulatory
sources of quantitative and qualitative data
 Stage 3: Additional non-public company info. Proposed
Determination. Hearing. SIFI.
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19. Recent Activity: Proposed Rules
 Volker Rule: Limits on Bank’s Proprietary Trading
 CFTC/SEC—Request for comment on study to
determine whether stable value contracts fall within the
definition of a swap (comment period ended 9/26/2011)
 IRS—Proposed rulemaking modifying Treasury
regulationsto remove references to credit reatings and
credit agencies (comment period ended 8/30/2011)
 SEC—Proposed rule for nationally recognized
statistical rating organizations (comment period ended
8/8/2011)
 CFTC/SEC—Joint proposed rule and proposed
interpretive guidance on the definitions of the terms
―swap‖, ―security-based swap‖ and security-based
swap agreement‖. (comment period ended (7/22/2011) 19

20. Recent Activity: Proposed Rules
 FCA/FDIC/FHFA/FRS/OCC—Proposal to establish swap
margin and capital requirements. (comment period ended
7/11/2011)
 CFTC—Reopening and extension of comment periods for
rulemakings on the new framework for regulation of swaps
(comment period ended 6/2/2011)
 CFTC—Proposed new rules, guidance and acceptable
practices for swap execution facilities (SEFs) (comment
period ended 6/3/2011)
 CFTC—Proposed definitions for ―Swap Dealer‖, ―Security-
Based Swap Dealer‖, Major Swap Participant‖, Major
Secuirty-Based Swap Participant‖, and Eligible Contract
Participant‖. (comment period ended 6/3/2011)
 CFTC—Process for review of swaps for mandatory clearing
(comment period ended 6/3/2011)
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21. Upcoming CFTC Task List
Second Half of 2011 First Half of 2012
 Clearinghouse rules  Capital and margin
 Data recordkeeping and reporting  Client clearing documentation and risk
 End use exception management
 Entity definitions/registration  Conforming rules
 External business conduct  Disruptive trading practices
 Internal business conduct  Governance and conflict of interest
 Product definitions/commodity  Internal business conduct
options  Investment of customer funds
 Real-time reporting  Swap execution facilities
 Position limits  Segregation for uncleared swaps
 Segregation for cleared swaps  Straight-though trade processing
 Trading-Designated contract
markets and foreign boards of
trade
Plus, add task list of SEC, FRB, US Treasury, CFPB, etc.
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22. Summary
 Dodd-Frank Act passed with great fanfare in July 2010
 Designed to fix macro-prudential problems following 2008 Financial
Crisis
 As a result, broadest single US federal financial law to date
 However, much of the details left to regulators
 Congressional oversight is partisan
 Democrats seek to continue legacy of legislation
 Republicans seek to overturn many provisions, restrict funding, grill agencies
 CFTC, SEC, FRB and other govt agencies continue to implement
 Impact of Dodd-Frank delayed but not defeated
 Impact on Insurance companies directly is less once expected
 Not widely designated as SIFIs
 Impact of swaps regs & margins and consumer protection bureau to be seen
 Will the next financial crisis be adverted or diminished? Europe 2012?
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23. QUESTIONS?
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