Obama’s proposal could tighten restrictions on insurers, pressure ratings, according to report

President Obama’s proposed financial regulations could tighten restrictions on insurance companies and pressure the companies’ ratings, according to a new report from Moody’s Investors Service. The most prominent factor in the insurers’ fates is the establishment of the Office of National Insurance inside the Department of the Treasury, an entity that would collect information and coordinate among regulators, according to the report, “Preliminary Assessment of the Obama Administration’s Regulatory Reform Proposal.” Insurers have relationships with their state commissioners and have received special consideration in the form of modified state rules, lightened statutory requirements and latitude in obtaining approval to pull dividends and assets from operating companies, New York-based Moody’s said in the report. But national oversight could cut that flexibility, possibly putting downward pressure on insurers’ ratings, according to the report. Still, ratings pressure could be offset by positive implications that come from a consistent regulatory framework, Moody’s said. Further, the Office of National Insurance would select insurers to be regulated as Tier 1 financial holding companies and work with state and international insurance regulators for consistency. Insurers with this designation are supposed to have stronger risk-management practices and a tighter match between assets and liabilities. Moody’s expects that there will be changes to risk-based capital standards — the measurement of a carrier’s strength — which vary from one state to another. If an insurer is designated a Tier 1 financial holding company, it might make it more difficult to create returns that are as high as they were before the financial crisis, according to the report. Still, tougher standards may make it easier for insurers to get funding for lower costs, Moody’s said.