Financial Services Reform Bill Gives Insurers A Break

However, in a manager's amendment, Sen. Chris Dodd, D-Conn., chair of the committee, changed the provision to read, "and any nonbank financial company supervised by the Board of Governors [of the Federal Reserve System]."

According to a lawyer for one of the insurance companies involved, who asked not to be quoted by name, that means only MetLife would have to contribute to the pre-funding of the Resolution Authority.

However, if the failure of a large company depletes the fund, a larger universe of companies–likely to include all non-health insurers with assets of more than $50 billion–would be forced to contribute, the industry lawyer said.

Among the companies that will benefit from the change will be 11 property and casualty carriers–ACE, Allstate, Chubb, CNA, Liberty Mutual, Nationwide, State Farm, Travelers, W.R. Berkley, Zurich and Hartford Insurance Group.

The American Insurance Association appreciates the bill's changes, but will continue to lobby to be exempt from the post-funding and other provisions that the industry fears would impose dual regulation on p&c insurers, AIA President and Chief Executive Officer Leigh Ann Pusey noted in a statement.

AIA, she said, is "concerned with a resolution mechanism that envisions assessing low-risk, low-leveraged property and casualty insurers for losses outside our industry, particularly where the failing firms are high-risk, high-leveraged entities."

Use of the Resolution Authority would be determined by a new Financial Stability Oversight Council, consisting of 11 federal regulators, led by the Treasury secretary and including one insurance representative appointed by the president.

Sen. Dodd said this body will focus on identifying, monitoring and addressing systemic risks posed by large, complex financial firms, as well as products and activities that spread risk across firms.

It will make recommendations to regulators for increasingly stringent rules on companies that grow large and complex enough to pose a threat to the financial stability of the United States, he explained.

Under other sections, the bill would create an Office of National Insurance and make systemically risky insurers subject to federal oversight. It also contains provisions similar to the House financial services reform measure modernizing and streamlining the surplus lines and reinsurance industries by facilitating regulation by a carrier's state of domicile.

Insurance industry officials have said they regard inclusion of these provisions as a key step forward, and believe them to be non-controversial and therefore likely to survive the melding of the House and Senate versions into a bill that can be enacted.

In a memo to members of the Council of Insurance Agents and Brokers obtained by the National Underwriter, Joel Wood, CIAB senior vice president for government relations, said that "after eight years of effort, and House passage of surplus lines reform legislation on four occasions, we're closer than ever to final enactment of these reforms."

"To the extent that [key senators] have all had optimistic statements in the past day that consensus can be reached on the Senate floor, we're optimistic, too," he said, while cautioning that "the Senate is the Senate, and this is a tough political environment."

Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices, said his group is "pleased to see the Senate make this important first step toward approving needed surplus lines reform legislation. With the inclusion of these reforms in the bill, we are moving closer to more efficient and effective regulation of the surplus lines insurance market."

The Risk and Insurance Management Society said Sen. Dodd's revised bill would "promote greater efficiencies in the insurance marketplace for commercial insurance consumers, as well as require consideration of enterprise-wide risk for certain financial entities."

"RIMS believes its passage will usher in not only a more effective insurance market within the United States., but will also further the country's influence abroad with regard to insurance issues," RIMS President Terry Fleming said in a statement.

RIMS also praised the sections streamlining requirements for the non-admitted or surplus lines market, "which is critical to the consistency and availability of procuring property-casualty insurance."

RIMS also backs creation of an Office of National Insurance, calling it "a necessary first step toward the federal government acquiring an expertise in insurance matters, as well as the ability to speak with one voice on international insurance issues."

RIMS said it "views this as an important precursor to the creation of an optional federal charter for commercial property and casualty insurers."

The bill was passed by a party-line, 13-10 vote, but comments from both committee Republicans and Democrats reflected optimism that such legislation could ultimately become law this year.

Specifically, both Sen. Dodd and Sen. Richard Shelby, R-Ala., said they would meet over the two-week Easter recess to see if they could craft bipartisan legislation that would secure the 60 votes needed to limit debate on the measure. The hope is that they could agree to a bipartisan bill that could be put on the Senate floor by the end of April.

That would set the stage for talks with the House and the Obama administration on a final bill. The administration and Democrats in Congress want a final measure approved before Congress leaves in late June for the July 4 recess.

In a statement, Sen. Shelby said that Sen. Dodd's latest proposal "contains a number of positive steps forward and could form the foundation for broad bipartisan agreement."

"I do not view today's markup as the end of the road, but rather just another step in the process," he said.

Sen. Bob Corker, R-Tenn.–who negotiated with Sen. Dodd on a compromise before Sen. Dodd decided to go ahead with his own bill last week–said he thought there was a 90 percent chance of passage.