Washington

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House passage of financial services reform legislation isdrawing a mixed response from the property and casualty insuranceindustry.

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The legislation–H.R. 4173, "The Wall Street Reform and ConsumerProtection Act of 2009″–was passed by the House on Dec. 11 by avote of 223-202. All Republicans and 27 Democrats opposed thebill.

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The measure heads to the Senate, where the BankingCommittee is working on legislation that may contain differentprovisions. Committee members have broken up into teams to developa bipartisan bill. Whether the Senate will unveil its versionbefore Congress leaves for the holiday recess this week isunclear.

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The bill included an amendment that allocates supervision ofreinsurance and surplus lines purchases to the buyer's home state.(See related story on page 7.)

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One bone of contention in the House bill is creation of aFederal Insurance Office.

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Charles Symington, senior vice president of government affairsfor the Independent Insurance Agents and Brokers of America, voicedsupport for the provision.

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He said the final language narrows the scope of the federaloffice from what originally was sought by the Obama administrationand the staff of the House Financial Services Committee "andprovides it with no regulatory authority whatsoever."

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Instead, the office would serve as an informational resource forCongress and federal policymakers on insurance issues, in additionto assisting the coordination of international tradeagreements.

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However, another agent group was less sanguine about themeasure's passage.

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"A death by a thousand cuts is still a death," said LeonardBrevik, vice president and chief executive officer of the NationalAssociation of Professional Insurance Agents. "For proponents ofstate regulation of insurance, passage of H.R. 4173 is not a causefor celebration."

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Specifically, Mr. Brevik said, "while positive changes to H.R.4173 were implemented throughout the committee process which madethe bill slightly less onerous, PIA nevertheless believes thatcreating a federal insurance office is a bad idea, not a goodone."

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He added that "it is certainly not something that should becheered by independent insurance agents."

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Charles Chamness, president and CEO of the National Associationof Mutual Insurance Companies, said the bill respected thestate-based regulatory framework for property and casualtyinsurance while creating an office to serve as a nationalinformation center.

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"NAMIC is encouraged by the efforts made to narrowly tailor thepurpose and authority of the Federal Insurance Office during thelegislative process," Mr. Chamness said.

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Leigh Ann Pusey, president and CEO of the American InsuranceAssociation–which has long supported an optional federal charterfor insurers–said in a statement that her group is "encouraged thatthe legislation establishes a federal office of insurance andbelieves that this provision offers a substantial contributiontoward broadening and deepening our nation's understanding of thecritical role of insurance in our financial system."

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In another positive development, while H.R. 4173 would create aseparate Consumer Financial Protection Agency for financialproducts, the bill specifically excludes property and casualtyinsurance from the jurisdiction of the new agency.

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That's wise, according to Mr. Chamness, who said that "asinsurers, NAMIC members are deeply concerned with the concept ofseparating consumer protection from soundness and solvencyregulation."

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In the view of Mr. Chamness, creation of a federal ConsumerFinancial Protection Agency carries "a potentially serious risk ofregulatory conflict and confusion, particularly as it relates tothe business of insurance. We are pleased that the members of theFinancial Services Committee recognized the problems this wouldcause and exempted the [property and casualty] industry from thisnew agency."

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However, NAMIC, AIA and the Property Casualty InsurersAssociation of America voiced concern about a provision to makelarge insurers pay into a fund to cover any failure by aninstitution large enough to cause a systemic risk.

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H.R. 4173 would establish a Financial Services Oversight Councilwith the power to designate financial companies it deems as posinga systemic risk to the overall economy for heightenedregulation.

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To address the costs of insolvencies at these designatedcompanies, the bill would create a fund to aid the unwinding oftroubled firms that would be assessed on a pre-event basis.

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"As NAMIC has said throughout the past year, there's no metricby which a property-casualty insurer would be considered'systemically significant,'" according to Mr. Chamness, noting that"property-casualty insurers are required by state regulators tomaintain high reserves, low leverage ratios and to participate inresolution mechanisms to mitigate against insolvencies.

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"Forcing them to pay assessments for a federal resolutionauthority would effectively be asking insurance consumers to footthe bill for the failures of other financial institutions," hesaid.

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PCI President and CEO David Sampson voiced similar complaintsabout this aspect of the House bill.

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"We reiterate that home, auto and business insurers did notcause the financial crisis and are not systemically risky," Mr.Sampson said. "They are not highly leveraged or interconnected withother financial firms as a source of credit or liquidity."

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He added that because p&c carriers are not "systemicallyrisky, they should not be forced into a duplicative federalregulatory system designed for companies that caused the economiccrisis. We urge Congress not to fix what is not broken."

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AIA's Ms. Pusey also cited "concern" about the proposeddissolution fund. "To the extent property and casualty insurers areconsidered in these reforms, the nature of our business andregulatory standards, our existing resolution and guarantyprocesses, and the general risk our industry poses to the broaderfinancial system has to be recognized," she said.

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"AIA opposes legislation that subjects our industry toprefunding obligations for systemically important financialcompanies and assesses insurance companies to pay for the riskspresented by the failure of non-insurance institutions," sheadded.

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"Given the importance of these reforms, AIA stands ready to workwith Congress to improve the bill as the legislative process movesforward," said Ms. Pusey.

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At the same time, PCI's Mr. Sampson said his group was "pleased"with comments on the House floor by Rep. Barney Frank, D-Mass.,chair of the House Financial Services Committee, that made"critical clarifications to the bill and publicly underscored thechairman's commitment to additional improvements [to thelegislation] for the property-casualty industry and itspolicyholders."

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The statements were made during debate the day before the bill'spassage through a dialogue between Rep. Frank and Rep. CarolynMcCarthy, D-N.Y.

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In his comments, Mr. Sampson said, Rep. Frank made a commitmentto include additional language in the conference report on the billwhen it is reconciled with the eventual Senate measure.

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