NU Online News Service, May 16, 3:09 p.m. EDT
A member of the Senate Banking Committee wants to make clear that he is concerned with how a new federal agency treats mutual insurers that could be declared systemic risks.
Seeking to clarify his position from a hearing Thursday, a representative of Sen. Sherrod Brown, D-Ohio, told National Underwriter that the senator wants to make clear that he is concerned about mutual insurance companies being appropriately designated as systemically significant.
“Sen. Brown believes that personal lines insurance companies, like home and auto insurance, are Main Street companies that assist Americans citizens in their daily lives,” says Lauren Kulik, Brown’s press aide.
“They generally make safe investments, do not use risky leverage schemes, and are heavily regulated at the state level,” she says. In addition, she says, “some of these insurers also will be subject to additional consolidated regulation by the Federal Reserve as savings and loan holding companies.”
Brown’s comments were made in the wake of concerns he voiced about mutual insurers being made subject to both state and federal oversight through provisions of the new Dodd-Frank financial services reform law.
At the hearing, members of the Financial Stability Oversight Council (FSOC) made clear that they will be deliberate and thoughtful in making decisions about which non-banks, including insurers, are designated as systemically significant.
Reflecting industry concern about being designated as systemically significant, Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies, says when apprised of Brown’s remarks that, “There are still a lot of questions that have gone unanswered since the economic crisis in 2008, but Sen. Brown’s shouldn’t be one of them.”
Grande adds that Sen. Brown “rightfully pointed out that while the crisis was precipitated by Wall Street firms and highly leveraged hedge funds, the vaguely worded current proposed rules raise the concern that already highly regulated Main Street property and casualty insurers could be wrongly labeled as systemically significant.
“We wish the Treasury had been more willing to state the obvious—that any reasonable analysis shows that mutual property and casualty insurers do not pose a systemic risk to the economy,” says Grande.
He says that mutual P&C insurers “keep conservative investment portfolios and are not highly leveraged. Additionally, they are subject to a rigorous regulatory system at the state level which includes strong consumer protections.”