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

WASHINGTON–The Insurance Information Institute is warning that levying a federal tax on property and casualty insurers to pay for the bailout of failed financial institutions would "constitute a significant policy error."

I.I.I. President Robert Hartwig's statement of concern today is linked to a proposal by congressional Democrats to create a tax on financial institutions with assets of more than $50 billion to support a prefunded resolution authority for troubled mega-asset financial companies.

At this point, because congressional rules require that all tax legislation originate in the House, it is unclear whether the Senate could substitute a tax, believed to be 15 or 16 basis points on institutions with assets of $50 billion, for the prefunding mechanism for a Resolution Authority that is currently included in the bill.

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

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

His statement comes as Senate Democrats and Republicans appear to be inching closer to an agreement on bipartisan financial services reform legislation.

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

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

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

"No property and casualty insurer failed because of the financial 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 new products throughout the crisis, whereas most banks radically scaled back their operations and product offerings," he said.

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

"Bank style regulation would needlessly raise insurance costs for hundreds of millions of insurance consumers and could unfairly require insurers to subsidize the reckless lending practices and speculative activities of failed banks," he predicted.

Mr. Hartwig added that "the resilience of the property and casualty insurance industry, even during times of extreme distress and volatility in the global economy and financial markets, truly sets property and casualty insurers and reinsurers apart from the rest of the financial services industry."

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

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

The White House, as well as congressional Democrats, are considering the tax as a means of winning strong Republican support for financial services reform legislation now being debated in the Senate.

Democrats are debating substituting a so-called TARP [Troubled Asset Relief Program] tax because Sen. Mitch McConnell, R-Ky., is criticizing the prefunding mechanism as sustaining the bailout of troubled financial institutions.

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

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

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

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

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

Special Reports /

I.I.I. Urges Congress: Don't Tax Insurers In Financial Reform Bill

Related Stories

Recommended For You