NU Online News Service, April 21, 3:00 p.m.EDT

WASHINGTON–The Insurance Information Institute iswarning that levying a federal tax on property and casualtyinsurers to pay for the bailout of failed financial institutionswould "constitute a significant policy error."

I.I.I. President Robert Hartwig's statement of concern today islinked to a proposal by congressional Democrats to create a tax onfinancial institutions with assets of more than $50 billion tosupport a prefunded resolution authority for troubled mega-assetfinancial companies.

At this point, because congressional rules require that all taxlegislation originate in the House, it is unclear whether theSenate could substitute a tax, believed to be 15 or 16 basis pointson institutions with assets of $50 billion, for the prefundingmechanism for a Resolution Authority that is currently included inthe bill.

The measure was reported out by the Senate Banking Committee ona party-line vote in late March.

Mr. Hartwig said the insurance firms should not be part of themeasure because they played no role in the financial crisis.

His statement comes as Senate Democrats and Republicans appearto be inching closer to an agreement on bipartisan financialservices reform legislation.

Sen. Richard Shelby, R-Ala., ranking minority member of theSenate Banking Committee, has been holding daily talks with Sen.Chris Dodd, D-Conn., chairman of the committee, in hopes ofcrafting a compromise bill.

Such legislation could be unveiled by this weekend, and debateon the bill could start on the Senate floor by Monday.

In his comments, Mr. Hartwig said, "As Congress considersfinancial industry reform, which could include the imposition oftaxes on large financial firms (including insurers) in order tocreate a fund to resolve those that fail in the future, propertyand casualty insurers have been arguing vociferously that they werenot the cause of the crisis and that the industry does not pose asystemic risk to the financial system."

"No property and casualty insurer failed because of thefinancial crisis (compared to more than 200 bank failures to date),no claim went unpaid, and no policy was cancelled," Mr. Hartwig,who holds a doctorate in economics, said in his statement.

"Insurers continued to compete vigorously and introduce newproducts throughout the crisis, whereas most banks radically scaledback their operations and product offerings," he said.

He said he opposes subjecting insurers to "bank styleregulation" in any form.

"Bank style regulation would needlessly raise insurance costsfor hundreds of millions of insurance consumers and could unfairlyrequire insurers to subsidize the reckless lending practices andspeculative activities of failed banks," he predicted.

Mr. Hartwig added that "the resilience of the property andcasualty insurance industry, even during times of extreme distressand volatility in the global economy and financial markets, trulysets property and casualty insurers and reinsurers apart from therest of the financial services industry."

The economic crisis at its zenith consumed "approximately 16percent of the industry's policyholders' surplus–more than anyother 'capital' event in post-Depression history, includingHurricane Katrina (13.8 percent) and the September 11 terroristattacks (10.9 percent)," he said.

"Unlike most banks, however, insurers and reinsurers continuedto operate normally on a global scale without any disruption totheir operations," he related.

The White House, as well as congressional Democrats, areconsidering the tax as a means of winning strong Republican supportfor financial services reform legislation now being debated in theSenate.

Democrats are debating substituting a so-called TARP [TroubledAsset Relief Program] tax because Sen. Mitch McConnell, R-Ky., iscriticizing the prefunding mechanism as sustaining the bailout oftroubled financial institutions.

The first of three hearings on the issue was held yesterday bythe Finance panel.

And, Rep. Sander Levin, D-Mich., chairman of the House Ways andMeans Committee, said Monday his tax-writing committee is in"serious discussions" with the administration and the HouseFinancial Services Committee on whether such a tax is viable.

He added that he expects to have further news on the potentialtax "in the next couple of weeks."

One insurance industry lobbyist said the industry is trying tolimit the fee only to companies that accepted money under theTroubled Asset Relief Program.

Three insurers have accepted funds from the TARP–AmericanInternational Group, the Hartford and Lincoln Financial.