Sunday, June 20, 2010

NCOIL Offers Input on H.R. 4173

This past week, state insurance legislators asked Congress to make sure that H.R. 4173 requires a material interest be present in “naked” credit default swap (CDS) transactions.

In a June 15 letter to Rep. Barney Frank, chair of the U.S. House-Senate Financial Reform Conference Committee, the National Conference of Insurance Legislators, Troy, N.Y., says that CDS is often defined as “insurance” against negative credit events and should be regulated as insurance.

The letter from NCOIL President Robert Damron, a state representative from Kentucky and New York Assemblyman Joseph Morelle notes that NCOIL developed a Credit Default Insurance Model law that would outlaw naked swaps “by requiring material interest as a prerequisite for buying protection. It also contains standard insurance requirements regarding company licensing, capital and surplus, and policy forms and rates, among other things.”

The letter goes on to state that “Not only does H.R. 4173 ignore the need for material interest and allow naked swaps, it goes further to effectively prevent state efforts to require material interest.”

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