Testifying on behalf of the Council of Insurance Agents and Brokers,
"That is why the Council of Insurance Agents and Brokers and its members believe that the Department of Treasury should vigorously exercise the authority granted to it in Section 102 of the Emergency Economic Stabilization Act, and establish a program to insure the value of troubled and illiquid financial instruments."
In response to an October 2008 request for comments from the Treasury Department, Aon submitted a plan to strengthen 's economy by insuring troubled assets. This plan, drawing on the precedents established in dealing with other seemingly insurmountable risks, such as the Price-Anderson Nuclear Industry Indemnity Act, would implement an insurance program that uses a combination of risk retention, risk pooling and government backstop liquidity that would benefit taxpayers, financial institutions saddled with illiquid assets, and homeowners.
"Such a plan, largely self-funding and drawing inspiration from the Price-Anderson Act, involves the sharing of risk by participants in an entity that we refer to as the asset stabilization pool,"
The Aon program would insulate an asset holder from the decline in value resulting from the non-payment, or expected non-payment, of principal and interest. Asset holders would be required to retain a small percentage of the shortfall of principle and interest, subject to a maximum annual payout per asset. Asset holders would be reimbursed from the pool for a shortfall in principal or interest once such amounts exceed their retention in a single year.
To receive the benefit of such coverage, participating institutions would have to pay premiums into the pool. Each year, actuaries would calculate the level of premium needed to fund guarantee payments for the following year. The government would also cap premium payments to the pool.
In the event that payments from the pool exceeded premium collections, the government would lend the pool the funds needed to make good on the guarantees. The government would be reimbursed by premium collections in following years. The Treasury Department could calibrate liquidity by speeding up or slowing down the collection of premiums.
Source: AON Corp.
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