Property/casualty insurers expressed cautious optimism at the outcome of congressional negotiations over financial regulatory reform legislation, but are continuing to evaluate the outcome of a marathon conference committee meeting.
They welcomed recognition in the final language that the property/casualty sector is not a factor in concerns over systemic risk and that the bill keeps the state guaranty fund system as the resolution authority for the sector. U.S. Senate and House of Representatives negotiators adopted the final language along party lines at close to 6 a.m. June 25 after 20 hours of talks.
"We've been up all night for 20 months afraid of what they might do," said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. "They resisted the temptation -- for the most part -- for overreach."
The bill, H.R. 4173, The Wall Street Reform and Consumer Protection Act, does not include a proposed $150 billion "pre-fund" as part of resolution authority for winding down failed firms, a fee the life insurers sector feared it would be subject to. The final language does include a $19 billion assessment on the largest financial institutions and hedge funds, to be collected over five years, to pay the costs of implementing the legislation.
While details of the assessment remain unclear, it is possible a handful of property/casualty companies could be affected, unfairly, Grande said. "That money isn't going to be used to bail out insurance companies," he said.
Congress will approve "death panels" this year -- just for failed financial services institutions, not health care consumers, House Financial Services Committee Chairman Barney Frank, D-Mass., said in an interview on CNBC. "There will be no more AIGs being kept alive," he said.
American Insurance Association President and Chief Executive Officer Leigh Ann Pusey said preserving the "unique nature" of insurance will be an important goal as the bill moves into final passage in the House and Senate, and in the rulemaking process. "While many of the final details will not be available until the weekend, to the extent property/casualty insurers have been considered in these reforms, in most instances the legislation appropriately recognizes that our industry does not pose systemic risk," she said in a statement.
The bill's "Volcker rule" added limits to the investment activities of insurers who own banks or thrifts. The American Council of Life Insurers and the National Association of Insurance Commissioners had balked, saying the inclusion of insurers was unnecessary. The ACLI said the final configuration of the rule will no longer hold life insurers subject to the proprietary trading provisions if the trades originate from general accounts or are done on behalf of customers through accounts segregated from funds in insurers' general accounts.
While not supporting new restrictions on derivatives trading, an ACLI statement argued life insurers will have a good argument before federal regulators with oversight responsibility. "Life insurers must prepare for claims which may not arise for 40 years or more and derivatives are indispensable in this process. These activities do not create systemic risks to the economy. Moreover, these activities are strictly and conservatively regulated under state insurance laws and regulations," it said in a statement.
The proposed Consumer Financial Protection Agency was reconfigured to be a bureau within the Federal Reserve instead of a separate agency. Either way, its oversight over insurance matters is expected to be minimal, industry representatives said.
Insurers welcomed the inclusion of surplus lines reform. It would put taxation, regulatory and licensing authority exclusively into the home state of the insured, meaning that multistate policies would only have premiums taxed in a single state.
"That's something the whole industry has been behind and supporting for years," Grande said.
The conference committee previously reached agreement on the creation of a new Federal Insurance Office as part of financial regulatory reform legislation. The final version includes provisions supported by those leery of the new office, including a requirement that the office first seek data from state regulators before pursuing a reporting burden for insurance companies. FIO would have authority to determine when state laws conflict with international agreements, but those decisions will be subject to judicial review (BestWire, June 24, 2010).
A new provision would bar the U.S. Securities and Exchange Commission from regulating equity-indexed annuities as securities. The amendment is a victory for annuities issuers who had sued to block the SEC action. The conference committee included House members who sponsored legislation to block the SEC from regulating the products, as well as Sen. Thomas Harkin, D-Iowa, who previously sought an amendment to the Senate bill that would have given states and territories sole authority to regulate indexed annuities (BestWire, June 24, 2010).
In their final change to the bill, lawmakers unanimously renamed it the Dodd/Frank Act, in honor of its chief authors: Frank and retiring Senate Banking Committee Chairman Chris Dodd, D-Conn.
(By Sean P. Carr, Washington Correspondent: [email protected])