Insurance Groups Object To Bailout Proposal

Rep. Luis Guitierrez, D-Ill., could introduce a “pay in advance” amendment today during the FSIA markup.

“We strongly oppose the idea of pre-funding because it runs counter to our own resolution system,” the p-c groups write in their letter. “We see no benefit to our industry and its customers that would flow from adopting an amendment to pre-fund the enhanced resolution authority.”

ACLI President Frank Keating writes in the ACLI’s letter that FSIA would change the Bank Holding Company Act to effectively treat operating insurance companies as if they were national banks merely because they are in a holding company system that also owns an ancillary non-bank depository institution.

“Many insurance companies insurance holding company systems contain small thrifts that are used to enhance the services provided to policyholders,” Keating writes.

“Although policy makers may see a need to restructure the regulation of thrifts, that should be done in a way that does not damage the other corporate entities within the holding company,” Keating writes.

As currently drafted, the BHCA changes would subject these insurers to the full prudential oversight of the Federal Reserve Board as well as to all the significant affiliate transaction and cross marketing prohibitions applicable to national banks,” Keating writes.

“Insurance companies should not be regulated as banks,” Keating writes.

The breadth of the Federal Deposit Insurance Company’s proposed authority to determine who will and will not be assessed “will result in a grossly unfair and inequitable burden placed on insurers,” the Keating writes.

The FDIC has “an interest in protecting banking institutions subject to FDIC assessments from these double assessments, and therefore can reasonably be expected not to subject that constituency to assessments under this proposal,” Keating writes. “This will inevitably result in increased assessments on insurers, as the FDIC is not knowledgeable enough on the workings of our industry or the guaranty association system protecting policyholders to understand the impact of such assessments on the financial health of the industry.”

Keating points out that insurers already are subject to a state-run insolvency system and already pay assessments into guaranty funds.

The p-c groups contend that they have not posed a systemic risk to the U.S. financial system or to the economy during the current economic crisis and ought to be excluded from the systemic risk oversight system.