P&C Industry Finds Some Positive Points In House Financial Regulatory Reform Bill

Washington

House passage of financial services reform legislation is drawing a mixed response from the property and casualty insurance industry.

The legislation–H.R. 4173, "The Wall Street Reform and Consumer Protection Act of 2009″–was passed by the House on Dec. 11 by a vote of 223-202. All Republicans and 27 Democrats opposed the bill.

The measure heads to the Senate, where the Banking Committee is working on legislation that may contain different provisions. Committee members have broken up into teams to develop a bipartisan bill. Whether the Senate will unveil its version before Congress leaves for the holiday recess this week is unclear.

The bill included an amendment that allocates supervision of reinsurance and surplus lines purchases to the buyer's home state. (See related story on page 7.)

One bone of contention in the House bill is creation of a Federal Insurance Office.

Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America, voiced support for the provision.

He said the final language narrows the scope of the federal office from what originally was sought by the Obama administration and the staff of the House Financial Services Committee "and provides it with no regulatory authority whatsoever."

Instead, the office would serve as an informational resource for Congress and federal policymakers on insurance issues, in addition to assisting the coordination of international trade agreements.

However, another agent group was less sanguine about the measure's passage.

"A death by a thousand cuts is still a death," said Leonard Brevik, vice president and chief executive officer of the National Association of Professional Insurance Agents. "For proponents of state regulation of insurance, passage of H.R. 4173 is not a cause for celebration."

Specifically, Mr. Brevik said, "while positive changes to H.R. 4173 were implemented throughout the committee process which made the bill slightly less onerous, PIA nevertheless believes that creating a federal insurance office is a bad idea, not a good one."

He added that "it is certainly not something that should be cheered by independent insurance agents."

Charles Chamness, president and CEO of the National Association of Mutual Insurance Companies, said the bill respected the state-based regulatory framework for property and casualty insurance while creating an office to serve as a national information center.

"NAMIC is encouraged by the efforts made to narrowly tailor the purpose and authority of the Federal Insurance Office during the legislative process," Mr. Chamness said.

Leigh Ann Pusey, president and CEO of the American Insurance Association–which has long supported an optional federal charter for insurers–said in a statement that her group is "encouraged that the legislation establishes a federal office of insurance and believes that this provision offers a substantial contribution toward broadening and deepening our nation's understanding of the critical role of insurance in our financial system."

In another positive development, while H.R. 4173 would create a separate Consumer Financial Protection Agency for financial products, the bill specifically excludes property and casualty insurance from the jurisdiction of the new agency.

That's wise, according to Mr. Chamness, who said that "as insurers, NAMIC members are deeply concerned with the concept of separating consumer protection from soundness and solvency regulation."

In the view of Mr. Chamness, creation of a federal Consumer Financial Protection Agency carries "a potentially serious risk of regulatory conflict and confusion, particularly as it relates to the business of insurance. We are pleased that the members of the Financial Services Committee recognized the problems this would cause and exempted the [property and casualty] industry from this new agency."

However, NAMIC, AIA and the Property Casualty Insurers Association of America voiced concern about a provision to make large insurers pay into a fund to cover any failure by an institution large enough to cause a systemic risk.

H.R. 4173 would establish a Financial Services Oversight Council with the power to designate financial companies it deems as posing a systemic risk to the overall economy for heightened regulation.

To address the costs of insolvencies at these designated companies, the bill would create a fund to aid the unwinding of troubled firms that would be assessed on a pre-event basis.

"As NAMIC has said throughout the past year, there's no metric by which a property-casualty insurer would be considered 'systemically significant,'" according to Mr. Chamness, noting that "property-casualty insurers are required by state regulators to maintain high reserves, low leverage ratios and to participate in resolution mechanisms to mitigate against insolvencies.

"Forcing them to pay assessments for a federal resolution authority would effectively be asking insurance consumers to foot the bill for the failures of other financial institutions," he said.

PCI President and CEO David Sampson voiced similar complaints about this aspect of the House bill.

"We reiterate that home, auto and business insurers did not cause the financial crisis and are not systemically risky," Mr. Sampson said. "They are not highly leveraged or interconnected with other financial firms as a source of credit or liquidity."

He added that because p&c carriers are not "systemically risky, they should not be forced into a duplicative federal regulatory system designed for companies that caused the economic crisis. We urge Congress not to fix what is not broken."

AIA's Ms. Pusey also cited "concern" about the proposed dissolution fund. "To the extent property and casualty insurers are considered in these reforms, the nature of our business and regulatory standards, our existing resolution and guaranty processes, and the general risk our industry poses to the broader financial system has to be recognized," she said.

"AIA opposes legislation that subjects our industry to prefunding obligations for systemically important financial companies and assesses insurance companies to pay for the risks presented by the failure of non-insurance institutions," she added.

"Given the importance of these reforms, AIA stands ready to work with Congress to improve the bill as the legislative process moves forward," said Ms. Pusey.

At the same time, PCI's Mr. Sampson said his group was "pleased" with comments on the House floor by Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, that made "critical clarifications to the bill and publicly underscored the chairman's commitment to additional improvements [to the legislation] for the property-casualty industry and its policyholders."

The statements were made during debate the day before the bill's passage through a dialogue between Rep. Frank and Rep. Carolyn McCarthy, D-N.Y.

In his comments, Mr. Sampson said, Rep. Frank made a commitment to include additional language in the conference report on the bill when it is reconciled with the eventual Senate measure.