WASHINGTON - The chairman of a House subcommittee said yesterday that he plans to push pending legislation that would give the federal government a greater role in examining insurance companies and their holding companies, while an insurance industry official urged lawmakers to mandate federal regulations for bond insurers.
Speaking at a hearing on systemic risk and insurance, Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services capital markets subcommittee, said the federal government should at a minimum create an office of federal insurance within the Treasury Department as part of an overhaul of the nation's financial regulatory system.
"I believe that only ostriches can now deny the need for establishing a federal insurance resource center and a basic federal insurance regulatory structure," he told those at the hearing, citing the near-collapse of American International Group.
Kanjorski's remarks come a few weeks after he introduced legislation that would establish such an office, which he envisions would serve as a single point of contact for the United States on domestic and international insurance matters and coordinate with any new "systemic risk regulator."
President Obama is expected to announce his financial regulatory reform proposal today. But while the plan may include a federal insurance office, it is not expected to include a new regulatory framework for the insurance industry, Reuters reported yesterday.
When introducing the legislation last month, Kanjorski described the office as the initial step in the creation of a federal regulatory system for the insurance industry. Currently, the industry is regulated at the state level.
At yesterday's hearing, Kanjorski said that he hopes the Obama administration will seek to actively regulate some specific insurance lines, "especially those that pose systemic risk or which have a national significance."
"Using these tests, federally regulated lines would include bond insurers, mortgage insurers, and reinsurers," he said.
While he did not say if federal insurance should be mandatory or voluntary, Kanjorski said Congress should consider improving greater uniformity within the industry, "with or without the establishment of a federal charter."
Speaking before the panel, Sean McCarthy, president and chief operating officer of Financial Security Assurance Holdings Ltd. and Assured Guaranty Corp., stressed that the bond insurance industry occupies a "unique space" in the insurance industry and should have consistent standards and oversight, adding that only a federal regulator can provide those.
"Most states do not have the resources to properly regulate such a specialized industry," he said.
McCarthy cited as a "good step" a New York State law known as Article 69, which was enacted in 1989 to separate "multiline" insurance products from financial guaranty insurance, in part to ensure capital adequacy at the firms. But Article 69 "was not strong enough," he said.
As a result, McCarthy called for "mandatory federal regulation that is closer to that of banks" and includes capital requirements. The rating agencies currently serve as de facto regulators, but lack adequate transparency, he said.
Meanwhile, Illinois insurance director Michael McRaith opposed the idea of federal regulation, saying state regulation works but would be inherently compatible with federal systemic risk regulation.
Though supporters of federal regulation have held up the near-collapse of AIG as an example of gaps in insurance regulation, McRaith argued that it was tied only to the financial products portion of the company that was unregulated and sold credit default swaps.
