NU Online News Service, May 7, 3:45 p.m. EDT

WASHINGTON–A bipartisan amendment was introduced late Thursday to the financial services reform legislation aimed at exempting insurers from paying for the resolution of large non-insurance financial services companies.

The amendment, if approved by the Senate, would allow the industry to complete its key goal in the legislation now being debated on the Senate floor–to exempt insurers from paying any of the costs associated with winding down systemically risky institutions other than insurers.

Blain Rethmeier, a spokesman for the American Insurance Association, said, "The Dodd-Shelby amendment that passed the Senate Thursday has improved the bill and limits insurers' exposure to assessments; however, it does not eliminate it.

"We support the bi-partisan Shaheen-Brown amendment because insurers would continue to operate in the state-based regulatory environment and not be forced to pay for the failures of riskier institutions," he added.

At the same time, according to Ben McKay, senior vice president of federal government relations at the Property Casualty Insurers Association of America, large insurers would still be subject to a provision in the legislation that would give oversight of those carriers to the Systemic Risk Council.

That body would primarily be composed of federal bank and securities regulators with authority to monitor the solvency of all financial institutions and subject them to added oversight if they are deemed troubled.

Mr. McKay said the industry believes that considering asset size as a determinative factor is flawed because it fails to consider a firm's level of interconnectedness in relation to the larger financial system. He cited a PCI commissioned study by NERA Economic Consulting.

The study argues that the insurance industry does not have the same exposures as other financial institutions and does not rely heavily on outside capital for funding. Because of these factors, "the transmission of systemic risk is unlikely to be observed in the property and casualty industry."

The Restoring Financial Stability Act of 2010 (S-3217) would create a new Office of National Insurance to monitor insurers and recommend to the council whether an insurer constituted a potential threat to the financial system.

The amendment, SA-3838, mandates that no nonbank financial services company that is subject to liquidation or rehabilitation under state law will be subject to any assessments by federal regulators to pay for resolving systemically risky financial institutions.

It is sponsored by four New England senators: John Kerry, D-Mass.; Scott Brown, R-Mass.; Jeanne Shaheen, D-N.H.; and Judd Gregg, R-N.H.

The amendment to the financial reform act is part of a two-pronged strategy by the industry to win exemption from both pre- and post-assessments used to pay for resolving large, troubled financial institutions.

There is speculation that Liberty Mutual, based in Boston, played a key role in persuading the four senators to introduce the amendment.

It has been reported that at the recent annual meeting of the Risk and Insurance Management Society in Boston, Liberty Mutual used a video to urge all insurance agents and users of insurance products to call their senators and urge them to oppose the imposition of assessments on insurers to pay for winding down troubled non-banks (http://tinyurl.com/2wqrpn9).

While no amendments will be acted on by the Senate, insurance industry officials said the Senate leadership wants to complete work on the bill by May 14.

Introduction of the amendment followed passage by the Senate of the bipartisan Dodd-Shelby amendment earlier in the day removing from the legislation a provision that would have required financial institutions with more than $50 billion in assets to pre-pay into a $50 billion resolution fund that would be used to resolve so-called "too-big-to-fail" financial institutions.

The earlier floor action came on a bipartisan amendment negotiated by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee and primary author of the bill, and Sen. Richard Shelby, R-Ala., ranking minority member of the Senate Banking Committee.

Under the amendment passed Thursday, the Federal Deposit Insurance Corp. would liquidate faltering firms by borrowing money from the Treasury Department to cover initial costs. The government would recover the costs by selling off the firm's assets, with creditors and shareholders incurring losses. Other large financial institutions could be assessed to pay for additional costs as a last resort, something the Kerry-Brown-Shaheen-Judd amendment aims at exempting insurers from.

However, insurers won language in the bill that would exempt all large insurers except MetLife from the pre-payment mandate.

Under the Dodd-Shelby amendment, creditors of a failing firm would be forced to pay back the government any money they received above what they would have gotten under a bankruptcy proceeding.

Any seizure of a large, failing firm would require court approval to ensure the government is not shutting down a company inappropriately.

In addition, under the bill, Congress would have to approve the use of federal debt guarantees, and regulators also would be able to ban management and directors of failed firms from working in the financial sector for a minimum of two years.

Special Reports /

Amendment To Reform Bill Would Bar Insurer Assessment

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