WASHINGTON–Treasury Secretary Henry Paulson's remarks yesterday that the Bush administration will consider the optional federal charter concepts for insurers were hailed by industry proponents of the idea.

Mr. Paulson made his remarks in response to questioning during a Senate Banking Committee hearing that was primarily focused on U.S. relations with China and economic competitiveness.

The secretary said that while the administration has yet to take a clear position on the regulation issue, he personally is in favor of a federal option for insurers and that regulatory structural issues will be considered as part of a Treasury conference examining U.S. competitiveness in March.

“I was very encouraged by Secretary Paulson's comments in favor of examining the merits of an optional federal charter,” said Kevin McKechnie, director of government relations for the American Bankers Insurance Association.

Mr. McKechnie, who is one of the leaders of the OFC Coalition, said: “Repair or replacement of the current system of state insurance regulation is a national issue that speaks to the challenges America faces in its effort to maintain its place of primacy as the world's financial services leader.”

He added that the Treasury's “interest in making American insurance regulation as modern and streamlined as regulation in other financial sectors is both timely and necessary.”

Dennis Kelly, a spokesman for the American Insurance Association, said the AIA also found Sec. Paulson's remarks encouraging in its push for the federal option.

He added that the AIA hopes Congress will revisit the issue as well.

“We look forward to the expected reintroduction of OFC legislation this year and what we hope will be a meaningful debate on the issue,” he said.

Mr. McKechnie offered support for the legislation, which was originally introduced last year by Senators John Sununu, R-N.H., and Tim Johnson, D-S.D., and would have established an optional federal charter based on that in use for the banking system.

When the reintroduction will happen remains unclear, given the crowded agenda of the new Democratic majority. However, Mr. Kelly said it could not occur soon enough for the AIA. “The sooner Congress can focus its attention on this, the better,” he said.

Opponents of the OFC proposal expressed dismay at the comments, arguing that the proposal should be especially objectionable to a Republican administration.

“It is disappointing to learn that an administration that was elected on the promise of a smaller federal government is now giving strong consideration to creating a new federal bureaucracy that would oversee the regulation of insurance,” said Justin Roth, a senior director and lobbyist for the National Association of Mutual Insurance Companies.

Additionally, Mr. Roth said that NAMIC intends to argue the case against a federal regulator when the Treasury holds its conference next month.

“We are hopeful that when the Treasury department holds its conference on insurance regulation in March, NAMIC is given the opportunity to point out the serious problems that would occur if an optional federal charter were created,” he said.

Charles E. Symington Jr., Independent Insurance Agents & Brokers of America senior vice president for government affairs and federal relations, complained in the same vein as NAMIC, saying, “A massive new federal bureaucracy to regulate the insurance industry is not going to ultimately create less regulation, but more regulation.

“We urge the Treasury Department to be very careful in analyzing the insurance regulatory system and to consider all of the implications of reform. The Big I strongly supports targeted regulatory reform to address problems in the market, and we hope the Treasury Department will consider this approach when reviewing the issue,” Mr. Symington added.

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