The document provides an actuarial update on the Dodd-Frank Act, outlining its origins in the 2008 financial crisis and its significant provisions aimed at enhancing financial stability and consumer protections. Key roles of new regulatory bodies, such as the Financial Stability Oversight Council and the Federal Insurance Office, are discussed, along with changes to existing regulatory structures. The ongoing implementation of the Dodd-Frank Act and its multifaceted impact on the financial and insurance sectors are also highlighted.

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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