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Cliston Brown
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Phone:
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202-639-0497
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cliston.brown@pciaa.net
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PCI Calls For Refinements
To Proposed Systemic Risk Bill
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WASHINGTON—The Property Casualty
Insurers Association of America (PCI) submitted testimony Thursday calling for
needed refinements to the discussion draft of the proposed Financial Stability
Improvement Act of 2009 released earlier this week and suggesting a three-part
test for systemic risk.
“Home, auto and business insurers are predominantly a Main Street industry, with
significantly less concentration and more small business competition than other
financial sectors,” said David A. Sampson, PCI’s president and CEO. “We have
rejected government handouts, and our industry is stable, healthy and
continuing to provide critical services to local economies and their
communities. Therefore, we should not be placed in the same risk pool as highly
leveraged Wall Street industries.”
PCI’s testimony noted that in significant respects, the
discussion draft proposed a good starting point for discussing systemic risk,
but that it appears not to adequately reflect the fact that the property
casualty insurance industry did not cause the existing economic crisis and is
not systemically risky. In particular, PCI’s concerns include:
- There
is no proposed screen to weed out the vast majority of companies that are
unlikely to present significant systemic risk.
- Any
insurer, regardless of size, could be subject to costly data calls, with
no requirement that the cost of compliance be weighed against its benefit,
ultimately hurting consumers.
- There
is no exemption from forced conversion of small, non-risky, non-bank
financing companies into bank holding companies.
- Representation
on the proposed Financial Services Oversight Council includes only one
non-voting representative from the insurance industry.
PCI suggested those issues should be resolved and that there
should be a systemic risk measurement system to reduce potential litigation and
uncertainty. To this end, PCI has proposed a three-part, weighted measurement
for systemic risk based on three criteria: failure probability, cyclicality and
potential economic impact.
“We are committed to working with the Administration and
Congress to develop effective and workable proposals for addressing systemic
risk and resolution,” Sampson said. “However, insurance consumers would not
benefit from additional, duplicative federal regulation oversight that will
ultimately harm the marketplace and increase costs for consumers.”
Additionally, PCI noted it would support the creation of a federal resolution
authority to resolve systemically risky financial companies, contingent on
seven points:
· The resolution authority
is focused on systemically risky entities and not on insurers (which generally
do not pose systemic risk).
· It does not duplicate
existing, effective state or federal resolution authorities.
· It does not give
companies incentives to engage in risky behavior.
· It does not punish those
who act responsibly.
· It requires industries
to pay their own resolution costs and does not permit cross-subsidization of
those costs among industries.
· It does not permit the
resolution agency to reach down and raid affiliates that are subject to
separate resolution authorities.
· It is a separate,
independent agency that is not a primary regulator for one industry.
PCI’s testimony notes that traditional property casualty
products do not pose the same types of risk as other financial sectors, because
they generate little counterparty risk and historically have had low failure
rates.
“While some increased federal regulation of systemically risky companies is
needed, we must be careful not to subject the insurance industry to new federal
regulation that duplicates the existing comprehensive state oversight or
preempts effective, experienced state regulators who have served consumers well
for many years,” Sampson said. “There is no equivalent, in our industry, of a
‘run on the banks’ due to the fact that we have a stable mandatory marketplace.
We believe that all regulatory reform legislation, including any new resolution
authority, should focus on truly systemically risky entities that are not
currently regulated adequately for systemic risk and not already subject to an
effective resolution system.”
PCI is composed of more than 1,000 member companies, representing the broadest
cross-section of insurers of any national trade association. PCI members write
over $180 billion in annual premium, 37.4 percent of the nation’s property
casualty insurance. Member companies write 44 percent of the U.S. automobile insurance
market, 30.7 percent of the homeowners market, 35.1 percent of the commercial
property and liability market, and 41.7 percent of the private workers
compensation market.
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