Financial Roundtable Supports Federal Insurance Regulation

National Underwriter News
February 2, 2009

An influential group of financial services executives is proposing creation of an omnibus federal financial regulator with a jurisdiction including life and property-casualty insurers as well as agents.

The proposal was adopted Thursday by the board of the Financial Services Roundtable, and is now being circulated to congressional leaders as well as officials in the Obama administration, according to Peter Freeman, vice president for insurance for the FSR.

The group has put out its report in advance of the Obama administration's blueprint for financial institutions, which is due out shortly.

President Obama indicated before he took office that he wants a legislative proposal for financial regulation unveiled before April 2 when leaders of the worlds' largest economies meet for the G-20 summit in London.

This week the Senate Banking Committee will hold two hearings on issues related to restructuring regulation of financial markets, and Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, will meet with reporters tomorrow to outline his legislative agenda for this Congress.

The Roundtable recommendations follow a recent report by the Group of 30 headed by former Federal Reserve Chairman Paul Volcker, who is an economic advisor to President Obama, which calls for federal oversight of multinational insurers.

Amongst other provisions, the FSR proposal calls for creation of a Financial Markets Coordinating Council to oversee five federal agencies. The panel would be an expansion of the Presidential Working Group on Financial Markets and continue to play an advisory role without independent regulatory authority.

Under the plan, the Federal Reserve would be granted new powers to ensure stability of the entire financial system, with the power to override other regulators.

Insurers would be regulated through a National Financial Institutions Regulator that would merge national regulation of banks and thrifts, broker-dealers and investment companies. It would combine the Office of the Comptroller of the Currency, Office of Thrift Supervision and Financial Industry Regulatory Authority into one agency.

The FSR plan also proposes expanding the authority of the Federal Deposit Insurance Corporation to include insuring national insurers. It would be called the National Insurance and Resolution Authority.

According to Peter Freeman, FSR vice president for insurance, the insurance commissioner at the federal level would have supervisory authority not only of the insurance company but of the holding company as well.

He cited the case of American International Group, whose venture into credit default swaps at the holding company level, under the presumed authority of the federal Office of Thrift Supervision, rather than insurance regulators, is being blamed for the company's problems.

Mr. Freeman said the FSR doesn't see the latest proposal as abandoning the concept of an optional federal insurance charter.

"I don't see it that way," Mr. Freeman said. "This proposal still provides an option for insurers to choose between the state system and the federal system."

He explained that the directors adopted this "architecture" for federal regulation of insurance because "they understand that the ongoing crisis in the world financial markets has revealed gaps and weaknesses within the current regulatory system, and the regulatory framework we are proposing is designed to deal with the weaknesses that have clearly materialized in the last year."

He added that all these principles are designed to get the discussion moving on what a new architecture for insurance regulation should look like.

Under the FSR plan, the national financial institutions regulator would oversee all insurers, brokers and agents that choose to be regulated at the national level, Mr. Freeman said.

"It would be comparable to a national bank charter and have regulatory authority over life and property-casualty insurers as well as producers."

He said prudential regulation would include rate and form regulation, safety and soundness, solvency and risk management, and it could include rate regulation.

"We don't want to create a situation where we have bifurcated regulation, where you have one regulator setting capital standards and another regulator at the state level regulating rates and forms," he said.

The FSR plan also calls for federal regulators to establish a process for addressing policy forms so that the development and marketing of new products is not delayed. "Federal law should rely upon competitive market forces to establish premium rates, wherever appropriate," Mr. Freeman said.

FSR insurance members include Aegon, Allianz, Allstate, Ameriprise, Aon, Assurant, AXA, Brown & Brown, ING, Liberty Mutual, Lincoln National, Mutual of Omaha, Northwest Mutual, the Principal, Protective Life, Prudential Insurance, State Farm, TIAA-Cref and Unum.

According to the Roundtable's Web site, guidelines call for a limit of 100 members drawn from the top 150 integrated financial services companies based on market capitalization or imputed market capitalization, with roughly 44 percent derived from bank-based companies, 28 percent from insurance, 17 percent from broad diversified companies and 10 percent from the securities industry.

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