Insurer Groups Say Prefunding For Systemic Risk Not Needed

Major insurance trade groups are asking the Senate Banking Committee not to require large financial institutions to prefund a systemic risk resolution fund as part of financial services reform legislation.

Creation of such a fund, the organizations argued, would have negative economic consequences.

The fund–created through assessments on financial institutions with assets of more than $50 billion–would be used to pay for the failure of systemically significant financial firms. Such a provision is included in H.R. 4173, the Wall Street Reform and Consumer Protection Act.

The House bill would authorize creation of a fund of up to $150 billion. In the letter, the trade groups say that to create a $100 billion fund, roughly $13-to-$14 billion per year would be needed in the next five-to-six years, “using conservative estimates.”

The industry trade groups that signed the letter represent large property and casualty and life insurance companies. They joined groups representing securities, brokerage and mutual fund companies in signing the letter, which was sent to the chair and ranking minority member of the Senate banking panel.

The Senate committee is working to draft bipartisan financial services legislation similar to the House bill. It hopes to have a bill ready for committee consideration before Congress departs for the Christmas recess.

“A new, prefunded systemic fund would threaten the economic recovery by diverting capital from job creation when previous efforts to augment capital are beginning to have an impact,” the letter said. “Further, there is no evidence that the existence of such a fund would deter the creation of new asset bubbles or other market distortions.”

Those groups signing the letter include the American Insurance Association, the Property Casualty Insurers Association of America and the American Council of Life Insurers, as well as the Financial Services Forum, the Financial Services Roundtable and the Securities Industry and the Financial Markets Association.