Regulatory reform will cost life insurers: analyst

The tax impact on carriers will encompass about 1% to 2% of their total earnings, assuming an annual tax of about 4 basis points.
AUG 31, 2010
While the financial-reform bill largely targets banks and brokerages, life insurers can still expect to be on the hook to help pay for its implementation. MetLife Inc., Prudential Financial Inc. and Lincoln National Corp. are among the life insurers that likely will face a tax beginning late next year that's aimed at covering some of the regulatory-reform package's costs, according to Jeffrey Schuman, an analyst for Keefe Bruyette & Woods Inc. In a research note to clients, Mr. Schuman said the tax, which will be spread over four years, will total at least $19 billion and will be levied on financial companies with more than $50 billion in assets under management, and hedge funds with more than $10 billion. The impact on the carriers will encompass about 1% to 2% of their total earnings, assuming an annual tax of about 4 basis points. The bill's rules on derivatives may also increase costs for life insurers, Mr. Schuman wrote. Specifically, the rules call for many derivatives transactions to be cleared through a clearinghouse and traded through an exchange. As a result, carriers, who use the derivatives for hedging risk, may face higher costs, according to Mr. Schuman's note. The rules also require that the Securities and Exchange Commission and the Commodity Futures Trading Commission oversee the clearinghouse; currently, state regulators oversee insurers' derivatives activity. The American Council of Life Insurers has opposed the new regulations, arguing that the carriers' derivatives activity doesn't pose a systemic risk.

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