NU Online News Service, March 23, 1:15 p.m.EDT

WASHINGTON– Insurers have secured key changes infinancial services reform legislation easing a proposed financialrequirement for large firms and eliminating tighter regulation offinancial product sales.

One revision to the bill reported out of the Senate BankingCommittee yesterday means only one life and property and casualtyinsurer will be required to pay into a fund to finance a ResolutionAuthority for the liquidation or reorganization of huge financialservices companies whose bankruptcy would pose a systemic risk tothe economy.

The other change calls for a study of a proposal to establish a"standard of care" for the sale of investment products and create afinancial planning oversight board.

Originally the proposal, by Sen. Herb Kohl, D-Wis., chairman ofthe Senate Aging Committee, would have created the standard andboard creation as part of the bill.

The life insurance industry, both underwriters and agents,strongly opposed such a provision, fearing that it was a back-doorway to impose a uniform fiduciary standard on the sale ofinvestment products.

The bill was passed by a party-line, 13-10 vote. But commentsfrom both committee Republicans and Democrats reflected optimismthat such legislation could ultimately become law this year.

Specifically, both Sen. Chris Dodd, D-Conn., chairman of thecommittee, and Sen. Richard Shelby, R-Ala., said they would meetover the coming two-week Easter recess to see if they could craftbipartisan legislation that would secure the 60 votes needed tolimit debate on the measure.

The hope is that they could agree to a bipartisan bill thatcould be put on the Senate floor by the end of April.

That would set the stage for talks with the House and the Obamaadministration on a final bill. The administration and Democrats inCongress want a final measure approved before Congress leaves inlate June for the July 4 recess.

In a statement, Sen. Shelby said that Sen. Dodd's latestproposal contains a number of positive steps forward and could formthe foundation for broad bipartisan agreement."

"I do not view today's markup as the end of the road, but ratherjust another step in the process," he said.

And Sen. Bob Corker, R-Tenn., who negotiated with Sen. Dodd on acompromise before the Connecticut senator decided to go ahead withhis own bill last week, said in comments at the late afternooncommittee meeting and in an answer to a reporter's question, thathe thought that there was a 90 percent chance of passage.

"I think it's probably true that we have a better opportunitywith a different cast of characters — the full Senate — to dosomething that is sound, policy-wise," Corker said.

For insurers, the bill creates an Office of National Insurance.It also makes systemically risky insurers subject to federaloversight and contains provisions similar to the House financialservices reform measure by modernizing and streamlining the surpluslines and reinsurance industry by facilitating regulation ofinsurers and reinsurers by their state of domicile.

Insurance industry representatives have said they regardinclusion of these provisions as a key step forward, and believe itnon-controversial and therefore likely to survive melding of theHouse and Senate bills into a bill that can be enacted intolaw.

In a memo to members of the Council of Insurance Agents andBrokers obtained by the National Underwriter, Joel Wood, CIABsenior vice president for government relations, said, "After eightyears of effort, and House passage of surplus lines reformlegislation on four occasions, we're closer than ever to finalenactment of these reforms."

"To the extent that Sen. Dodd, Shelby and Corker have all hadoptimistic statements in the past day that consensus can be reachedon the Senate floor, we're optimistic too," he said adding that,"the Senate is the Senate, and this is a tough politicalenvironment."

Richard Bouhan, executive director of the National Associationof Professional Surplus Lines Offices, said, "We are pleased to seethe Senate make this important first step toward approving neededsurplus lines reform legislation. With the inclusion of thesereforms in the bill we are moving closer to more efficient andeffective regulation of the surplus lines insurance market."

Under the bill section dealing with Resolution Authoritypre-funding issue, use of the fund would be determined by a newFinancial Stability Oversight Council, consisting of 11 federalregulators led by the Treasury secretary and one insurancerepresentative appointed by the president.

According to Sen. Dodd, this body will focus on identifying,monitoring and addressing systemic risks posed by large, complexfinancial firms as well as products and activities that spread riskacross firms.

It will make recommendations to regulators for increasinglystringent rules on companies that grow large and complex enough topose a threat to the financial stability of the United States, Sen.Dodd explained.

Under the original bill, any financial services company withassets of more than $50 billion would have been assessed for thecreation of a $50 billion fund in 5 years.

But, in a manager's amendment Sen. Dodd changed the provision toread, "and any nonbank financial company supervised by the Board ofGovernors [of the Federal Reserve System]. According to a lawyerfor one of the insurance companies involved, who asked not to bequoted by name, that means that only MetLife would have tocontribute to the pre-funding of the Resolution Authority.

However, if the failure of a large company depletes the fund, alarger universe of companies, likely to include all non-healthinsurers with assets of more than $50 billion, would be forced tocontribute, the industry lawyer said.

Amongst the companies that will benefit from the change will be11 property and casualty companies, ACE, Allstate, Chubb, CNA,Liberty Mutual, Nationwide, State Farm, Travelers, W.R. Berkley,Zurich and Hartford Insurance Group.

Amongst the life companies who will benefit are Prudential, NewYork Life, Northwestern Mutual, Mass Mutual, TIAA-Cref, ManuLife,Lincoln Financial Group, The Principal, Pacific Life, Aflac,Riversource, Jackson National, Genworth, Sun Life and ThriventFinancial, the source said, citing the American Council of LifeInsurers annual Fact Book.

This change was a priority of both the property casualty andlife insurance industries.

Leigh Ann Pusey, American Insurance Association president andCEO, said in a statement that, AIA appreciates the bill's changes.However she said insurers will continue to lobby to be exempt fromthe post-funding and other provisions that the industries fearwould impose dual regulation on property and casualty and lifeinsurers.

AIA, she said, is "concerned with a resolution mechanism thatenvisions assessing low-risk, low-leveraged property and casualtyinsurers for losses outside our industry, particularly where thefailing firms are high-risk, high-leveraged entities."

Under the mandate for the Government Accountability Office tostudy the effectiveness of state and federal financial productsales regulations the GAO would have to report back to Congresswithin six months of the date of enactment of the bill.