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Kentucky lawmakers approve bill to offer insurers lower rates from Home Loan Bank

The Kentucky General Assembly has become the only legislature so far this year to pass a bill that could give insurers lower rates on commercial loans from the Federal Home Loan Bank system.

The Kentucky Senate this week unanimously approved House Bill 171, two months after it passed the House. The bill is now on its way to the governor’s office.

If enacted, the measure would give the home loan bank priority over guarantees pledged by member insurance companies, allowing the bank to lower its premiums on loans, which could save significantly. to carriers.

Rep. Fischer

“This bill will allow Kentucky-domiciled insurance companies to borrow from the Federal Home Loan Bank on the same terms as Kentucky banks and credit unions do,” Kentucky Rep. Joe Fischer said. , R-Fort Thomas, at a House Banking and Insurance Committee. in January.

These rates can be as low as 1.6% on three-year notes, according to the FHLB.

Banks are federally regulated and backed, at least to some degree, which automatically gives home loan banks first priority on collateral when banks run into trouble. But insurers are primarily regulated by the states, so the FHLB, governed by the Federal Housing Finance Agency (FHFA), has taken the state-by-state approach to address the discrepancy.

“A Federal Home Lending Bank shall not be suspended or otherwise prohibited by a court from exercising its rights with respect to guarantees pledged by an insurer member for more than 10 days following the date on which a temporary restraining order, a preliminary injunction or a permanent injunction is issued by the court”, reads HB 171.

Some 21 state legislatures have passed similar laws in recent years. This year, bills were pending in at least five states, but only Kentucky’s plan passed. Lawmakers in Florida and Virginia have now adjourned, and bills in New York and New Jersey have made little headway.

The Federal Home Loan Bank system, with 11 regional banks across the country, originated in the 1930s. It is best known for providing low-interest loans to member banks, for mortgages, to support l community investment. But the banks also lend to member insurance companies that may need liquidity assistance or cannot find such favorable rates in the commercial loan market.

Florida-based insurers could stand to benefit the most from this type of legislation. With the state property insurance market in crisis and a number of carriers posting record losses for 2021, some may appreciate lower rates on commercial paper. Eight Florida insurers are listed as members of the FHLB system. Senate Bill 1888 was introduced by Florida Senator Joe Gruters in January, but it and a similar House bill died in committee when the 2022 session ended on March 11.

See an article from February for more information on legislative efforts.

Kentucky Carrier Legislation

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