Senators Sherrod Brown (D-OH) and Tom Harkin (D-Iowa) have urged the SEC and banking regulators to exempt from the Dodd-Frank Volcker Rule regulations insurance companies directly engaged in the business of insurance when making purchases consistent with State insurance laws in hedge funds and private equity funds. In a letter to the regulators, the Senators noted that the Dodd-Frank Act exempts from the proprietary trading prohibition insurance companies that are: (1) subject to state insurance regulation; (2) making investments from their general account; and (3) complying with home-state insurance investment laws, regulations and guidance. But the exemption in the proposed regulations do not extend to state-regulated insurance companies' general account investments in hedge funds or private equity funds.
The Senators said that the final regulations should treat certain insurance company investments in these funds using money from their general accounts in a manner consistent with Congress' intent. These investments, when conducted by state-regulated companies, can be an appropriate and important part ofan insurer's investment strategy.
The Senate Committee Report on Dodd-Frank stated that one goal of the Volcker Rule provision is appropriately accommodating the business of insurance within insurance companies subject to State insurance company investment laws. In light ofthis statement, the key test should be whether an investment is permitted by State insurance company investment law. Provided that investments in hedge and private equity funds are permissible under state law, said the Senators, they should be permitted under the Volcker Rule.