NAIFA GovWatch

U.S. House Subcommittee Examines Systemic Risk and the Insurance Industry

Issue: Insurance Regulatory Reform

Date: June 16, 2009

Action Taken: The U.S. House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (Chairman Paul Kanjorski, D-PA) held a hearing today to examine the role a systemic risk regulator could play in the insurance industry. The hearing was held on the eve of the Obama Administration unveiling its plan to restructure the financial services regulatory regime. The Committee heard from a wide array of industry experts, including regulators and association representatives. The following witnesses comprised the panel:

The Honorable Peter Skinner, Member, European Parliament
The Honorable Michael T. McRaith, Director, Illinois Department of Insurance on behalf of the National Association of Insurance Commissioners
Ms. Teresa Bryce, President, Radian Guaranty Inc. on behalf of the Mortgage Insurance Companies of America
Mr. Sean McCarthy, Chief Operating Officer, Financial Security Assurance, Inc.
Mr. Kenneth F. Spence, Executive Vice President and General Counsel, Travelers
Mr. Franklin Nutter, President, Reinsurance Association of America
Mr. Patrick S. Baird, Chief Executive Officer, AEGON USA, LLC on behalf of the American Council of Life Insurers
Mr. John T. Hill, President and Chief Operating Officer, Magna Carta Companies on behalf of the National Association of Mutual Insurance Companies

In his opening statement, Chairman Kanjorski acknowledged that, given the complexity and global nature of the insurance industry today, there is an undeniable need to modernize the regulatory treatment of insurance. Problems faced by AIG in recent months highlight the fact that regulatory gaps can expose the financial markets to great risk, and that those risks need to be regulated and prevented. He also went on to say that in order for the U.S. insurance industry to have dialog at the international level, there must be a single point of federal contact with which international regulators can interact. The Chairman pointed to his legislation, known as the Insurance Information Act of 2009, which would create an Office of Insurance Information to potentially serve as that point of contact. Kanjorski hopes that such an office will be considered as part of the overall financial services regulatory restructuring.

Separating today’s hearing from previous hearings held on insurance regulation was the presence of the Honorable Peter Skinner representing the European Union’s Economic and Financial Services Council. Skinner testified that, given the EU’s recent passage of Solvency II standards which will unite the 27 member countries in their insurance markets, it would be extremely difficult for the U.S. to operate in European markets given the lack of a single federal voice. Skinner said that there needs to be equivalence between regulators on a global level, and state regulators do not carry the same authority as a federal regulator. Representing the NAIC, Illinois Insurance Commissioner Michael McRaith acknowledged that individual states do not have the constitutional authority to enter into foreign treaties, and therefore a federal entity—potentially an Office of Insurance Information—is needed to keep the U.S. competitive in global markets.

To view a complete report of today’s hearing, please visit: http://www.naifa.org/advocacy/documents/testimony_06162009.pdf.

NAIFA Position: NAIFA, along with several other insurance industry partners, released a statement supporting sound regulatory reform for the life insurance industry which streamlines regulation and keeps consumers’ best interests in mind. To view a copy of the letter, please visit: http://www.naifa.org/advocacy/documents/21st_Century_Regulation.pdf.

For more information on NAIFA’s regulatory reform efforts at the state and federal levels go to www.naifa.org/irr.

Next Steps: The Treasury Department is expected to unveil tomorrow its blueprint for restructuring the financial services regulatory regime. The following day, Treasury Secretary Geithner will testify before both the House and Senate regarding the Administration’s plan. It should be noted that in a briefing attended by NAIFA staff this morning, House Financial Services Chairman Barney Frank said the issue of optional federal insurance charter is a priority for the Committee and he will take it up in September. Prior to September, the Committee will work on the Obama Administration’s proposal to establish a systemic risk regulator with the resolution authority to unwind systemically significant financial institutions.

NAIFA Staff Contact: Jill Edwards, Assistant Vice President, Federal Government Relations; or Jen Piantedosi, Legislative Assistant – Government Relations, at jpiantedosi@naifa.org.

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