NU Online News Service, Dec. 22, 2:55 p.m.EST

Fears that only the federal government has the power to preventimposition of “bank-centric” international-financial regulation byEuropeans is leading two major insurance players to moderate theircomments to the Treasury Department on the role the federalgovernment should play in insurance regulation going forward.

In fact, in its comment letter to the Treasury Department on theissue, Liberty Mutual Insurance Group says that an optional federalcharter for insurance companies should be considered as part of an“explicit, but limited, federal role in insurance regulation.”

And, in its letter, the Property Casualty Insurers Associationof America says that in examining the future of insuranceregulation, the FIO should take a deliberate approach; “one whichstarts with an analysis of the dimensions of the insurancemarketplace,” before determining how the industry should beregulated in the future.

Liberty Mutual is a member of PCI.

The letters were sent to the Federal Insurance Office inresponse to a request for comment from the agency on how insuranceshould be regulated going forward.

The FIO requested the comments because under the Dodd-Frankfinancial services law it is mandated to present to Congress byJan. 21 a study on insurance regulation and how it should bemodernized going forward.

Most letters either strongly support continued state regulationor call for some form of federal regulation of insurance goingforward.

But the PCI and Liberty Mutual letters appear to acknowledgethat only the federal government has the power to slow or moderatethe demands of European regulators for high capital and rigidaccounting rules for financial firms doing business in theinternational marketplace.

For example, the PCI letter says, “In particular, FIO'sleadership is necessary in ongoing international discussions wheretheU.S.marketplace faces both opportunities and threat ofbank-centric Eurocratic regulation that could impose harmfulstandards or at best significant transition costs as we headtowards global convergence.”

The Liberty Mutual letter, signed by Paul Mattera, senior vicepresident and chief public affairs officer, says a federal role isnecessary because insurance markets and related products,transactions and capital flows are “becoming increasinglyinterstate and international.”

Mattera adds that a federal-regulatory role for insurance shouldbe considered for insurance products that serve increasinglyborderless markets.

“Consumers of these products are not well served by discordantstate regulations…nor are insurers that face increasingly globalchallenges such as terrorism risk, reinsurance and capitaladequacy, and cross-border financial and trade regulation,” Matterasays.

In its letter, PCI says that before the FIO considers solutionsor long-term regulatory recommendations, it should analyze thedimensions of the insurance marketplace, consider what theregulatory philosophy of insurance has traditionally been andshould be, and determine good principles of insuranceregulation—regardless of where the regulation is conducted.

“After FIO has determined the optimal regulatory philosophy andprinciples of good regulation for insurance, it can then providemore insightful recommendations to Congress on how to improveinsurance regulation, recognizing current political realities andavailable resources,” PCI says.

The letter said that while arguments are likely to continue overwhere insurance should be regulated and to what extent regulationshould be functional or objectives-based, “those discussions areputting the cart before the horse.”

The letter adds, “While FIO may not have regulatory power, itcan play an extremely important role in coordinating U.S. policy oninternational matters among the various state and federal entitiesand resolving conflicts between federal agencies and the U.S.marketplace, and helping Congress understand and prepare foranticipated insurance issues and vulnerabilities.”