NU Online News Service, March 27, 3:40 p.m.EDT

WASHINGTON–Treasury Secretary Timothy Geithner'scautious statements of support for an optional federal charter forinsurers is provoking reactions pro and con from property-casualtyinsurance company trade groups.

At the same time, another p-c trade group noted that it was"particularly concerned" about a provision in proposed legislationthat would establish a federal authority to take action on troubledinsurance companies big enough to have systemic impact.

His proposal would enable the Federal Deposit Insurance Corp. totap surplus capital from subsidiaries of a group in difficulty toshore up the holding company's finances and place a lien on thatcompany. Such an action would only apply to surplus that exceededthe subsidiary's legally required reserves.

In general, most p-c trade groups urged the Obama administrationto tread carefully in revising current financial institutionregulatory schemes. They were commenting on Mr. Geithner's speechyesterday before the House Financial Services Committee outliningthe Obama administrations plans to tighten regulation of financialservices companies.

The administration also provided Congress with proposedregulation that would extend the authority for the FDIC to allow itto take control of large, non-bank financial services firms,including insurers, and to either rehabilitate them or place themin conservatorship or receivership.

"Draining capital intended to protect policyholders couldpotentially undermine an industry that is largely solvent in orderto prop up other industries with solvency problems. We are veryconcerned about the potential for harm to consumers and themarketplace," said David A. Sampson, president and CEO of theProperty Casualty Insurers Association of America.

"We urge Congress to carefully examine this entire proposal andensure that it does not create unintended consequences, such aspotentially undermining a largely healthy industry–and hundreds ofmillions of consumers–to bail out troubled, excessive risk-takingsectors of the economy," he said.

Regarding Mr. Geithner's remarks about an optional federalcharter, the American Insurance Association said it supported suchlegislation.

Leigh Ann Pusey, AIA president, said "it was encouraging to hearSecretary Geithner indicate there was a 'good case' for introducingan optional federal charter for insurance companies. We areoptimistic and recognize that any reforms must be responsive to theevolving economic climate."

Ms. Pusey acknowledged that p-c companies "do not pose the sametypes of systemic risk challenges to our economy as other financialservices sectors."

But, she added, "given the national and global nature of therisk assumed by the property-casualty industry and its importanceto a well-functioning economy, the industry needs to have a seat atthe federal regulatory table alongside the other federal financialregulators."

The National Association of Mutual Insurance Companies and theIndependent Insurance Agents and Brokers of America took adifferent view.

Jimi Grande, vice president for federal and political affairs ofthe National Association of Mutual Insurance Companies, said inreaction to Mr. Geithner's testimony and answers to questions,"NAMIC is pleased that a number of members on the committee, aswell as the secretary, reiterated their support of the state-basedregulatory system for insurance."

But he noted, "While Secretary Geithner told the committee thatany federal regulatory authority should not supplant the effectivestate regulation of insurance, he left open the door to discussionof an optional federal charter.

"We are concerned that the secretary and some members ofCongress may use the current crisis as an opportunity to establishfederal regulatory authority over insurance activities," said Mr.Grande.

"Property-casualty insurance regulation should remain at thestate level since efforts to establish an optional federal charteror federal oversight of property-casualty insurance would lead toinefficient, costly and confusing dual regulation," he said.

Charles E. Symington Jr., senior vice president for governmentaffairs for the Independent Insurance Agents and Brokers ofAmerica, said IIABA "agrees that state regulation should not be'supplanted' by a new federal regime."

However, "we are concerned with his comments that a 'good casecould be made for an optional federal charter,' the type ofregulation that helped contribute to the current crisis," headded.