A group of associations representing the property/casualty industry is asking for revisions to the recently unveiled Financial Stability Improvement Act.
In a letter to House Financial Services Committee Chairman Barney Frank (D. -Mass.), the groups expressed concern about the treatment of their industry in efforts to stop systemic risk. "The discussion draft allows the Financial Services Oversight Council to designate "financial companies" - which expressly include U.S. and foreign non-bank financial institutions such as insurers - for heightened prudential regulation," the letter states. "We are concerned that holding companies of insurers and insurers themselves could be subject to bank-centric regulatory provisions that fundamentally conflict with the insurance regulatory model."
The letter stresses that insurers are generally low-leveraged businesses, with lower asset-to-capital ratios than other financial institutions, subject to resolution mechanisms at the state level, and operate under a guaranty system funded by private insurers that ensures the continued payment of policyholder claims in the rare event of an insurer insolvency.
"For these reasons, we believe that any federal proposal to subject financial companies to heightened prudential supervision should start from the premise that property and casualty companies engaged in insurance activities should not be subject to such supervision," the letter states. "This is particularly important because the discussion draft relies on bank-centric regulatory standards that are inapposite to the insurance regulatory model."
The group also objects to a provision that would subject insurers to pre-event assessments to fund a resolution mechanism, deeming it redundant in light of the the industry's own resolution system. Signatories of the letter include the American Insurance Association, the Independent Insurance Agents and Brokers of America, the National Association of Mutual Insurance Cos., the Property Casualty Insurers Association of America and the Reinsurance Association of America.
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