NU Online News Service

WASHINGTON--Ten large property and casualty insurerstoday asked leadership of the Senate Banking Committee to exemptthe industry from federal oversight in financial services reformlegislation that will be marked up starting Monday.

In a letter to the committee, the 10 insurers, callingthemselves the Property & Casualty Leaders Coalition, said theyoppose "misdirected" provisions of the legislation "that wouldshift the cost of failures of financial institutions outside of oursector to our customers."

They are talking about a provision of the legislation proposedMonday by Sen. Chris Dodd, D-Conn., that would make insurers andother large, complex financial services companies subject tooversight by the Federal Reserve Board and a new FinancialStability Oversight Council.

Under the bill proposed by Sen. Dodd, federal oversight, inaddition to current state oversight, would be applied to nonbankfinancial companies--determined by a two-thirds majority vote ofthe Financial Stability Oversight Council--to be subject toprudential supervision by the Board of Governors of the FederalReserve System. The reason is that "material financial distress" atthe company "would pose a threat to the financial stability of theUnited States."

The House financial services reform legislation passed lastDecember contains a similar provision. Both bills would also createan Office of National Insurance.

The latest letter was written by the new Coalition to Sen. Doddand Sen. Richard Shelby, R-Ala., the ranking minority member of thecommittee.

The companies signing the letter were the Ace Group; Allstate;Chubb; CNA; Liberty Mutual; Nationwide Insurance; State Farm;Travelers; W.R. Berkley Corporation; and Zurich FinancialGroup.

"We remain unequivocal in our view that it is counter to thepublic policy underlying the legislation to force our companies andour customers to pay for the risky activity of highly leveraged andless regulated financial entities," the letter said.

Specifically, the letter said the coalition members have graveconcerns over a provision of the draft bill that goes beyond theinitial $50 billion pre-event resolution fund that includesproperty-casualty insurers of a certain asset size on a post-eventbasis to fund the resolution of failing systemically riskyinstitutions.

The coalition argued that this approach is "fundamentally atodds with the overall purposes of the legislation."

The letter said that, by assessing insurance companies that donot engage in activities putting U.S. financial stability at riskand that are already assessed through state guaranty funds to coverinsured claims of their insolvent competitors, the approach"arbitrarily elevates company size and dilutes the bill's statedpurpose of infusing greater caution into the behavior of thosefirms that present the greater risk of another crisis."

According to the letter, as currently written, the provisionalso "creates a competitive disadvantage for those non-bankfinancial companies that are forced to pay the fee, even thoughnone of them has been determined to be systemically risky."