State insurance commissioners have lashed out at members of Congress who are blaming state regulation for the problems of American International Group (AIG) and using the AIG crisis to bolster their advocacy for federal regulation.
The state regulators spoke out at their annual meeting this week in Maryland in response to a Wall Street Journal opinion article authored by four members of Congress who support a federal charter for insurers: U.S. Senators John Sununu (R-N.H.) and Tim Johnson (D-N.D.) and House members, Reps. Melissa Bean (D-Ill.) and Ed Royce (R-Calif.).
The Wall Street Journal op-ed suggested that the AIG problems were the result of a failure of state regulation.
“The move last Tuesday night by the Fed is a clear sign that the status quo is no longer a pragmatic — or responsible — option. Letting this 19th-century regulatory model govern a 21st-century global marketplace poses obvious and increasing risks to the health of the insurance industry, American taxpayers and our capital markets. Congress needs to address this matter before the government is forced to bail out another failed insurance company,” the authors wrote in their op-ed.
But state regulators insist nothing could be further from the truth, and argue that state regulation actually did an exemplary job in protecting AIG insurance companies and policyholders.
The regulators speaking out included NAIC President and Kansas Commissioner Sandy Praeger, New York’s Eric Dinallo, Pennsylvania’s Joel Ario, Connecticut’s Thomas Sullivan, West Virginia’s Jane Cline, Iowa’s Susan Voss and New Hampshire’s Roger Sevigny.
“The government didn’t bail out an insurance company,” said Roger Sevigny, New Hampshire’s insurance commissioner. “There weren’t any insurance company subsidiaries of AIG in trouble. The government bailed out AIG and its financial holdings.”
“This is not a time for political opportunism,” Joel Ario, Pennsylvania’s insurance commissioner, said of the lawmakers. “I’m disappointed in the political chutzpah of some people.”
Connecticut Insurance Commissioner Thomas Sullivan said state regulators “were shocked” to read the article that suggested that the AIG crisis was an argument for giving Washington more authority.
NAIC President and Kansas Commissioner Sandy Praeger responded to the Wall Street Journal op-ed with her own letter.
“This argument is fundamentally flawed because it is based on a totally inaccurate assumption of facts. First and foremost, AIG is not an insurance company; it is a federally-regulated holding company under the jurisdiction of a federal regulator. It is AIG’s holding company — more specifically, its financial products division — that lies at the heart of AIG’s financial difficulties. And, its problems arose under the watch of a federal regulator,” Praeger wrote of the op-ed argument.
The federal advocates argue that the bailout of giant AIG shows the oversight job has become too complex for states alone.
But the state officials note that the U.S. Office of Thrift Supervision regulates the holding company, while states are responsible for AIG’s 71 insurance units. The insurance companies are the healthiest part of AIG and this fact allowed the Federal Reserve Board to approve the $85 billion bailout of the company because the insurance companies could be sold to raise the money needed to pay off the loan.
“What got the Fed in the end to make this loan was the value of the insurance (company) assets,” Ario said. “The real story is, state regulation shined.”
Click here for NAIC audio of what the state commisisoners had to say.
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