Saturday, June 26, 2010

Insurance Groups Take Stock of Financial Reform

Insurance trade groups are weighing in on major financial service reform that will become reality now that the conference committee on financial services regulatory reform has reached agreement on H.R. 4173.

The bill, which will now be known as the Dodd-Frank Act, is a big win for President Barack Obama who promised to reign in excesses in the financial services industry.
And while the legislation has not yet been published in final form and some industry issues will be addressed in a formal rulemaking process, here is an initial take on the bill.

American Council of Life Insurers, Washington

The ACLI maintains that derivatives are critical to helping manage claims which are long term and that state regulation is doing a good job of managing derivatives. The bill creates new regulatory responsibility for the Securities and Exchange Commission and the Commodity Futures Trading Commission to create a clearinghouse and definitions such as “swap participant” and “major swap participant.” ACLI believes that it can make a case that derivatives reduce risk in insurance products and should be excluded from those definitions.

ACLI says it supports a federal insurance office within the Treasury Department with expertise in insurance to advise Congress and the administration on insurance related issues and to help negotiate international regulatory equivalent agreements.

A provision that establishes a resolution authority and how it will affect insurers, according to the ACLI, still needs to be clarified. ACLI notes that insurers contribute to guaranty funds and that under the new law that will continue. And the Federal Deposit Insurance Corporation would only step in the unlikely event that an insurance commissioner was unable to handle the insurer insolvency.

And on the issue of assessments to pay for the new law, the ACLI believes that since it is risk-based, it should have little effect on the industry.

American Insurance Association, Washington

The AIA says that in most instances, the new law recognizes that the property-casualty industry did not pose systemic risk. It points out that state-based regulation remains in place and the existing guaranty fund system continues to protect policyholders.

The organization expresses support for the federal office of insurance but opposes an assessment provision that pre-funds obligations.

National Association of Insurance and Financial Advisors, Falls Church, Va.

NAIFA supports a provision that allows the SEC to move forward with as a study examining the standard of care and the impact of differing regulations for broker-dealers and investment advisors. However, it expresses disappointment over a best interest standard not directly tied to the study even though it supports the idea that no broker-dealer and their registered reps can violate those standards because they sell proprietary products and receive commissions.

National Association of Mutual Insurance Companies, Indianapolis

NAMIC says it is pleased that the new law recognizes that the P-C industry is not among the causes of the financial crisis and that state-based regulation is left largely intact.

The organization also says that the FIO will remain an information resource for policymakers rather than duplicating regulation done by state regulators.

Property Casualty Insurers Association of America, Des Plaines, Ill.

While noting that improvements have been made to prevent duplicative regulation with the FIO proposal, PCI expresses concern over the long-term impact on the competitiveness of the U.S. financial services sector. It notes that state regulation provides the best protection for consumers.

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