Two Republicans on the Troubled Asset Relief Program Oversight Panel are recommending that Congress give insurers a choice between state and federal regulation.

Two Republicans on the Troubled Asset Relief Program Oversight Panel are recommending that Congress give insurers a choice between state and federal regulation.

Congress created the oversight panel when it developed TARP.

Rep. Jeb Hensarling, R-Texas, and former Sen. John Sununu, R-N.H., make the optional federal charter, or OFC, recommendation in a minority report.

Frank Keating, president of the American Council of Life Insurers, Washington, which supports the OFC concept, is praising Sununu and Hensarling’s recommendations.

Keating says he is disappointed that the panel majority did not include life insurance in its reform recommendations.

“Life insurance is a $5 trillion industry that operates globally, interacts closely with banks and securities firms, and affects the lives of almost all the American people,” Keating says.

Without a national insurance regulatory option, there will be a gaping hole in federal financial oversight, Keating says.

“It will be impossible to establish comprehensive oversight of systemic financial risk if the life insurance industry is not part of it,” Keating says.

The authors of the main report made 8 recommendations. One was that the government should identify and regulate financial institutions that pose systemic risk — including critical nonbank institutions — by designating the Federal Reserve Board or another agency to handle that task.

Another was that the government should increase supervision of the shadow financial system — a network of hedge funds, private equity funds, over-the-counter derivatives, off-balance sheet conduits, and other centers of capital and investment activity.

Sununu and Hensarling write in the minority report that “a national charter would allow regulators to take a comprehensive view of the safety and soundness of large insurance companies and to better understand the potential risks they may pose to the strength of the broader U.S. economy.”

“Congress should institute a federal charter that may be utilized by insurance firms to underwrite, market, and sell products on a national basis,” Sununu and Hensarling write.

“By allowing insurance firms to choose between a unified national charter or maintaining operations under existing state regulation, Congress can build upon the success of state guarantee pools and maintain state jurisdiction over premium taxes,” Sununu and Hensarling write.

“A national charter would also allow regulators to take a comprehensive view of the safety and soundness of large insurance companies and to better understand the potential risks they may pose to the strength of the broader U.S. economy,” Sununu and Hensarling write.

Moreover, while individual state insurance regulators have effectively managed state guarantee pools, as well as safety and soundness within their jurisdiction, “they simply are not equipped to effectively oversee a global firm such as [American International Group Inc.], which had 209 subsidiaries at the time the federal government acted to prevent its collapse in the fall of 2008,” Sununu and Hensarling write.

Of the 209 subsidiaries, Sununu and Hensarling write, only 12 fell under the jurisdiction of the New York insurance commissioner, which was effectively AIG’s primary regulator.

Sununu, who was defeated in November 2008 for reelection, was a primary sponsor for the past two Congresses of legislation that would create an optional federal charter for insurers.

Hensarling now is the highest ranking Republican member of the Subcommittee on Financial Institutions and Consumer Credit at the House Financial Services Committee.