Treasury Secretary Timothy F. Geithner's recent remarks beforethe House Financial Services Committee about the creation of anoptional federal charter regulatory system have educed a fracturedresponse from leading insurance associations.

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During the hearing, Geithner discussed the need to outline stepsto "protect against systemic risk" and "lay out a detailedframework for stronger rules to protect consumers and investorsagainst fraud and abuse."

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Leigh Ann Pusey, president of the American Insurance Association(AIA), agreed that new rules should protect consumers andpolicyholders and "encourage innovation and high standards thatwill create a race to the top, rather than a race to thebottom."

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In a written statement, Pusey spoke in favor of federalregulation to evaluate the soundness of the U.S. insurance sector,adding that regulation at the state level was not a sustainableapproach.

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"The current crisis has exposed that the state-based insuranceregulatory structure is fragmented and not well-equipped to handlethe capacity of today's regulatory challenges," Pusey said.

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The National Association of Mutual Insurance Companies (NAMIC)had a different take, asserting that P&C regulation should"remain at the state level since efforts to establish an optionalfederal charter or federal oversight of property/casualty insurancewould lead to inefficient, costly, and confusing dualregulation."

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Jimi Grande, vice president for federal and political affairs atNAMIC voiced skepticism about Geithner's statement that federalregulatory authority should not supplant the effective stateregulation of insurance and pointed out that the administration'sproposal left many questions unanswered.

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"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," Grandesaid. "We look forward to working with policymakers on the issuebut urge Congress and the administration to "tread carefully asthey craft solutions to the current turmoil and target only thoseelements of the financial services industry where there areregulatory gaps."

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Similar to NAMIC, PCI also asked that Congress to exercisecaution and "proceed in a thoughtful, thorough manner" so as not todisrupt a system that is already working well. In particular, PCIexpressed concern about enabling the Federal Deposit InsuranceCorp. (FDIC) to tap capital from insurers in holding companies andpotentially use those monies to prevent insolvencies in otherindustries.

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"Draining capital intended to protect policyholders couldpotentially undermine an industry that is largely solvent in orderto prop up other industries with solvency problems," said David A.Sampson, PCI's president and CEO. "We urge Congress to ensure that[this proposal] does not potentially undermine a largely healthyindustry, and hundreds of millions of consumers, to bail outtroubled, excessive risk-taking sectors of the economy."

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