United States: Post-Election Outlook – Key Issues Affecting Insurers

Donald Trump's election to the presidency, together with Republican retention of control of both houses of the 115th Congress, could signal consequential changes in a number of key areas of regulation affecting insurance. The two political branches of the federal government revert to full Republican control for the first time since January 2007, although with 48 seats in the Senate, the Democrats will retain the ability to filibuster legislation.

Dodd-Frank Act

President-elect Trump has consistently criticized the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") in his campaign, and his administration's transition website pledges to work to "dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation."

A complete repeal of Dodd-Frank would undo all regulation of "systemic" risk (including the ability to designate an insurer as a systemically important financial firm subject to regulation by the Federal Reserve Board) and curtail federal capital requirements on systemically important insurers and insurers that own depositary institutions. It seems reasonable to expect, however, that any repeal proposal likely to move forward would maintain some of Dodd-Frank's regulatory architecture as well as spare the Nonadmitted and Reinsurance Reform Act ("NRRA"). Adopted as part of Dodd-Frank, after having been sought by industry for years, the NRRA imposes a uniform choice-of-law regime on surplus lines and credit for reinsurance.

Two proposals from the current (114th) Congress may offer clues to what a rollback of Dodd-Frank might look like. Both were stranded in Congress in the shadow of what would have been a certain presidential veto under a Democratic administration, but could be revived under the Trump administration and the Republican-controlled Congress. Neither addresses the NRRA, which would apparently remain intact under either proposal.

  • Earlier this year, H.R. 5983, the Financial CHOICE Act of 2016, was introduced by Rep. Jeb Hensarling, chairman of the House Financial Services Committee. Rep. Hensarling has been mentioned as a possible Treasury secretary in the Trump administration, but appears likely to remain as Financial Services chair in the House. The CHOICE Act eliminates much of the systemic risk provisions of Dodd-Frank as well as the orderly liquidation authority (resolution of institutions whose failure would have systemic consequences). In addition, the CHOICE Act would replace the Federal Insurance Office (an advisory body formed by Dodd-Frank) with an "independent insurance advocate" whose role would be to "act as an independent advocate of the interests of United States policyholders on prudential aspects of insurance matters or importance." According to press reports, Rep. Hensarling has been in discussions with the incoming Trump administration about the prospects for the CHOICE Act in the new Congress. 
  • Last year, Sen. Richard Shelby (R-Ala.), the chairman of the Senate Banking Committee, introduced the Financial Regulatory Improvement Act of 2015 (the "Shelby Bill"), which would significantly amend Dodd-Frank by reforming the SIFI-designation process, deferring certain matters to state regulators and imposing limitations on the federal government in certain insurance-related financial regulatory activities. For our client alert on an earlier version of the Shelby Bill, click here. Sen. Shelby is term-limited as the chair of the Senate Banking Committee (the committee through which any financial reform legislation would need to pass) and is likely to be replaced by Sen. Michael Crapo (R-Idaho) in 2017.

Patient Protection and Affordable Care Act

One of the most visible issues in the 2016 campaign was the future of the Patient Protection and Affordable Care Act (the "ACA"), colloquially known by both supporters and detractors as "Obamacare." Adopted in 2010 over the bitter opposition of the Republican minority in Congress, the ACA has survived the 2011-2016 age of divided government, with Republican Congresses passing numerous bills repealing or otherwise scaling back the law, and President Barack Obama exercising or threatening his veto and issuing executive actions to preserve it. During the campaign, President-elect Trump vowed to repeal the ACA, but since the election he has indicated he would retain certain aspects of the law, such as guaranteed-issue (i.e., the prohibition on declining a person for coverage based on a pre-existing condition).

Given the ACA's massive scope and extensive implementation to date, a full discussion of the possible consequences of repeal are beyond the scope of this alert, but we note a few key items from an insurance regulatory perspective. The ACA is notable for introducing a very meaningful federal role in the regulation of health insurance policies and plans, particularly insofar as rate and form regulation is concerned. Repeal would largely return these matters to exclusive state regulatory control. Furthermore, the establishment of the health care "exchanges" mandated by the ACA has had a profound impact on the health care insurance market across the country; any unwinding of exchanges is likely to be equally consequential, presenting challenges to state insurance and health care regulators as they seek to stabilize markets. In addition, repeal would require some resolution or other disposition of all of the state cooperatives formed under the ACA, a number of which have already been struggling.

US-EU Covered Agreements

Over the past year, the U.S. Department of the Treasury and the Office of the U.S. Trade Representative have been engaged in negotiations with the European Union on a "covered agreement" in order to address concerns regarding the imposition by European regulators of Solvency II standards on U.S. insurance companies. These covered agreements may include agreements on reinsurance collateral, group supervision and the sharing of confidential information. (Such covered agreements are authorized under the NRRA.) While personnel changes at the Treasury Department and the Trade Representative Office may delay the negotiation process if an agreement is not reached by Inauguration Day on January 20, 2017, neither the Trump campaign nor the transition team has intimated the incoming administration's policy position with respect to the ongoing negotiations.

DOL Regulation Affecting Fixed Annuities

A closely watched U.S. Department of Labor regulation scheduled to take effect in April 2017 would expand the definition of "fiduciary" for purposes of employee benefits rules. The expanded definition would capture sellers of fixed annuities, which under current law are not covered. The regulation would also narrow an exemption, currently available to sellers of insurance products, from the rules on "prohibited transactions" between plan fiduciaries and plans. Under the regulation, among other things, a fiduciary selling fixed annuities to a plan would be required to act "in the best interest" of the plan and observe other restrictions in order to invoke the exemption. The DOL regulation would significantly impact distribution models and compensation for the sales of annuities to retirement plans and accounts. The industry has expressed hope that the DOL under the Trump administration would delay implementation of the regulation or revoke it altogether.

Iran Nuclear Deal and State Insurance Laws

While the Joint Comprehensive Plan of Action ("JCPOA"), more colloquially known as the Iran nuclear agreement, does not explicitly pre-empt state laws, insurance or otherwise, that prevent or penalize investments in persons related to the Iranian regime, Supreme Court precedent suggests that such state laws may be unenforceable in light of the federal government's phased-out sanctions relief policy vis-a-vis the JCPOA. At times President-elect Trump has promised to withdraw from the multiparty deal, while at other times Mr. Trump indicated that he would renegotiate the deal. If the JCPOA is indeed abrogated, then states will have considerably more latitude to continue to enact and enforce state sanctions, including those that affect the insurance industry.


As with any new administration, particularly when there is a shift of power between the parties, there will inevitably be personnel shake-ups at relevant federal agencies that may impact the direction of insurance regulation. Two federal agencies deal specifically with insurance – the Federal Insurance Office ("FIO"), created as an advisory body under Dodd-Frank, and the Financial Stability Oversight Council ("FSOC"). With respect to the FIO, the director of such agency is appointed by the Treasury Secretary, a position that Mr. Trump has yet to nominate someone to fill.

S. Roy Woodall, Jr., the FSOC's independent member with insurance expertise, is near the end of his six-year term which is set to expire in September 2017. President Trump will have the opportunity to reappoint Mr. Woodall or appoint a replacement independent member with insurance expertise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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