WASHINGTON--Ten large property and casualty insurers today asked leadership of the Senate Banking Committee to exempt the industry from federal oversight in financial services reform legislation that will be marked up starting Monday.
In a letter to the committee, the 10 insurers, calling themselves the Property & Casualty Leaders Coalition, said they oppose "misdirected" provisions of the legislation "that would shift the cost of failures of financial institutions outside of our sector to our customers."
They are talking about a provision of the legislation proposed Monday by Sen. Chris Dodd, D-Conn., that would make insurers and other large, complex financial services companies subject to oversight by the Federal Reserve Board and a new Financial Stability Oversight Council.
Under the bill proposed by Sen. Dodd, federal oversight, in addition to current state oversight, would be applied to nonbank financial companies--determined by a two-thirds majority vote of the Financial Stability Oversight Council--to be subject to prudential supervision by the Board of Governors of the Federal Reserve System. The reason is that "material financial distress" at the company "would pose a threat to the financial stability of the United States."
The House financial services reform legislation passed last December contains a similar provision. Both bills would also create an Office of National Insurance.
The latest letter was written by the new Coalition to Sen. Dodd and Sen. Richard Shelby, R-Ala., the ranking minority member of the committee.
The companies signing the letter were the Ace Group; Allstate; Chubb; CNA; Liberty Mutual; Nationwide Insurance; State Farm; Travelers; W.R. Berkley Corporation; and Zurich Financial Group.
"We remain unequivocal in our view that it is counter to the public policy underlying the legislation to force our companies and our customers to pay for the risky activity of highly leveraged and less regulated financial entities," the letter said.
Specifically, the letter said the Coalition members have grave concerns over a provision of the draft bill that goes beyond the initial $50 billion pre-event resolution fund that includes property-casualty insurers of a certain asset size on a post-event basis to fund the resolution of failing systemically risky institutions.
The Coalition argued that this approach is "fundamentally at odds with the overall purposes of the legislation."
The letter said that, by assessing insurance companies that do not engage in activities putting U.S. financial stability at risk and that are already assessed through state guaranty funds to cover insured claims of their insolvent competitors, the approach "arbitrarily elevates company size and dilutes the bill's stated purpose of infusing greater caution into the behavior of those firms that present the greater risk of another crisis."
According to the letter, as currently written, the provision also "creates a competitive disadvantage for those non-bank financial companies that are forced to pay the fee, even though none of them has been determined to be systemically risky."