Property/casualty insurance companies, which already pay into state guaranty funds to backup claims of their insolvent peers, don’t want to have to also pay into a federal fund to cover failures of larger and riskier financial services firms.
Leading p/c company executives are urging Sen. Chris Dodd, D-Conn., to amend his financial regulatory reform act so that it does not shift the cost of financial firms’ failures onto the p/c industry and its customers. They argue that property/casualty carriers do not pose the same risk as large, highly-leveraged financial firms and thus should not be lumped in with them in the reforms.
The Dodd measure calls for assessments on some insurers for a fund that would backup large, interconnected financial companies that pose a systemic risk to the economy.
But property/casualty insurers note that they already pay into guaranty funds in states that pay the claims of insolvent insurers. According to the National Conference of Guaranty Funds, these state insolvency funds have been around for about 40 years and have paid more than $21 billion in claims, with about half of this amount paid out in the past six years.
Dodd is chairman of the Senate Committee on Banking, Housing, and Urban Affairs. His reform bill is scheduled to be marked up on March 22.
The following executives signed a letter to Dodd and Sen. Richard Shelby, R-Ala., who is the committee’s ranking minority member:
- Evan Greenberg, Chairman & CEO, The ACE Group
- Stephen Rasmussen, CEO, Nationwide Insurance
- Thomas Wilson, Chairman, President & CEO, The Allstate Corporation
- Edward B. Rust Jr., Chairman & CEO, State Farm Insurance
- John Degnan, Vice Chairman & COO, The Chubb Corporation
- Jay Fishman, Chairman & CEO, The Travelers Companies, Inc.
- Thomas Motamed, Chairman & CEO, CNA
- William Berkley, Chairman & CEO, W.R. Berkley Corporation
- Edmund Kelly, Chairman, President & CEO, Liberty Mutual
- Paul N. Hopkins, CEO, Americas, Zurich Financial Services
The text of the letter read:
As leaders in the property/casualty insurance industry, we want to underscore our
continued support for financial regulatory reforms that will provide a framework for a stable, world-leading financial services sector. We support efforts that will improve oversight of the most highly-leveraged and interconnected firms and address unregulated activities that characterized the financial crisis, but oppose misdirected regulation that would shift the cost of failures of financial institutions outside of our sector to our customers.
In particular, we have grave concerns over a provision of the draft bill that goes beyond the initial $50 billion pre-event resolution fund that includes property-casualty insurers of a certain asset size on a post-event basis to fund the resolution of failing systemically risky institutions. This approach is fundamentally at odds with the overall purposes of the legislation. By assessing insurance companies that do not engage in activities that put U.S. financial stability at risk and that are already assessed through state guaranty funds to cover insured claims of their insolvent competitors, this approach arbitrarily elevates company size and dilutes the bill’s stated purpose of infusing greater caution into the behavior of those firms that present the greater risk of another crisis. It also creates a competitive disadvantage for those non-bank financial companies that are forced to pay the fee, even though none of them has been determined to be systemically risky.
In our March 2nd letter to you and other members of the Committee, we outlined the low-risk, stable nature of the property-casualty sector and indicated our opposition to reforms that are not focused on firms that pose risk to U.S. financial stability. As this legislation goes to mark up in your Committee, with respect to our involvement in assessments, we remain unequivocal in our view that it is counter to the public policy underlying the legislation to force our companies and our customers to pay for the risky activity of highly leveraged and less regulated financial entities.
Thank you for considering our views on these important matters. We look forward to continuing to work with the Committee in an effort to craft reform legislation aimed at lessening the probability of a future crisis while promoting a healthy, vibrant, and competitive property-casualty insurance market.