NU Online News Service

The chairman of a key House Financial Services panel last nightunveiled draft legislation creating a federal insurance regulatoryoffice that tracks with minor omissions legislation submitted toCongress by the Obama administration.

A draft of legislation creating a "Federal Insurance Office"with strong authority over solvency and international issues wasreleased by Rep. Paul Kanjorski, D-Pa.., chairman of the CapitalMarkets Subcommittee of the House Financial Services panel.

The American Insurance Association voiced support for thelegislation, but the National Association of Mutual InsuranceCompanies said it goes too far.

Blain Reithmeier, a spokesman, said the bill "properly addressesthe need for a strong national voice on insurance issues at thefederal level."

He added, "It also addresses persistent concerns over the U.S.'sability to conclude international agreements with respect toinsurance by allowing the U.S. to engage authoritatively with theglobal community in prudential areas and providing the FederalInsurance Office with the requisite power to preempt stateinsurance measures that are inconsistent with internationalagreements.

Reithmeier concluded, "We look forward to testifying on thistopic next Tuesday, and to suggesting some amendments that advancethe important objectives of the draft legislation."

The National Association of Mutual Insurance Companies voicedstrong opposition.

"NAMIC recognizes the federal government's need for betterinformation about the property and casualty insurance industry andenhanced coordination with international financial servicesregulators," said Jimi Grande, senior vice president of federalaffairs for the NAMIC. "But meeting that need shouldn't require thecreation of a de facto federal regulator."

NAMIC supported Rep. Kanjorski's original proposal for an Officeof Insurance Information, which provided information andinternational coordination while recognizing the primacy of stateregulation and protecting confidential information, but said itopposes the proposal.

"The renamed Federal Insurance Office proposal goes well beyondinformation analysis and international cooperation, however, andcould serve as the first step toward federal regulation of propertyand casualty insurance," Grande said.

The bill will be the subject of a full committee hearing Tuesdayand is likely to be reported out by the committee to the full Houseby the end of the month.

After full House passage, it would then have to be reconciledwith legislation dealing with financial services regulatory reformnow being drafted in the Senate Banking Committee.

A key difference between the approaches of the House and Senateis that the House is dealing with financial services regulatoryreform issues on a bill-by-bill basis, while the Senate BankingCommittee plans to propose an omnibus bill with up to 13 titlesincorporating all of its proposed financial services reformprovisions.

The omnibus Senate Banking bill is expected to be unveiled latethis month, followed by a prompt markup of the legislation by thecommittee.

The bill introduced by Rep. Kanjorski mirrors the legislationsubmitted by the Obama administration except for deletion of thesubpoena and enforcement provisions sought by the Treasury in itslegislation. That legislation would have created an "Office ofNational Insurance."

The decision of Rep. Kanjorski to delete the two provisions wasmade at the request of industry and state regulatoryrepresentatives who oppose any initiatives by the federalgovernment to have a role in insurance regulation.

The draft was released in advance of a hearing scheduled Tuesdayby the full committee to discuss the new Kanjorski bill as well asother components of financial services reform legislation,specifically, the Investor Protection Act and the Private FundInvestment Advisers Registration Act.

The FOI bill would create an insurance agency within Treasury todesignate insurers as systemically risky.

The FOI would be headed by a director appointed by the Secretaryof the Treasury. Its authority would cover all lines of insuranceexcept health insurance. It would also have the authority tooversee the Terrorism Risk Insurance Act.

The new agency would have the power to monitor the insuranceindustry, including identifying gaps in regulation that couldcontribute to systemic risk issues; represent the USinternationally at the International Association of InsuranceSupervisors (IAIS) and in the negotiation of internationalregulatory agreements (called "International Insurance Agreementson Prudential Measures").

It also would authorize the Secretary of the Treasury tonegotiate and enter into these international agreements.

The agency would have the authority to preempt state insurancemeasures; consult with the states on insurance matters; and advisethe secretary on domestic and prudential international insurancepolicy issues.

In releasing his draft Rep. Kanjorski said, "Insurance plays avital role in the smooth and efficient functioning of our economy,but the credit crisis highlighted the lack of expertise within thefederal government regarding the industry, especially during thecollapse of American International Group and last year's turmoil inthe bond insurance markets."

He said a "Federal Insurance Office will provide nationalpolicymakers with access to the information and resources needed torespond to crises, mitigate systemic risks and help ensure awell-functioning financial system."