On June 16, 2009, the United States Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (the “Subcommittee”) held a hearing regarding how to improve oversight of the insurance industry in order to protect insurance consumers and prevent insurance companies from posing a systemic risk to the American financial system.
According to Representative Paul E. Kanjorski (D-PA), Chairman of the Subcommittee, “the federal government must have in-house expertise on this significant sector of the financial services industry and have an ability to watch over insurers as part of broad systemic risk and consumer protection authorities.” Chairman Kanjorski also noted “that insurance is both an important part of the national economy and certain lines may require more comprehensive and consolidated oversight.”
Franklin W. Nutter, president of the Reinsurance Association of America (RAA) offered testimony in support of the federal regulation of the reinsurance industry as a way to improve oversight of the reinsurance industry and to promote a competitive and healthy global reinsurance market. In Mr. Nutter’s written testimony, he offered criticism to the current “cumbersome nature of a multi-state licensing system” where “many new entrants into the reinsurance market have opted to establish a reinsurance platform outside the U.S.” Mr. Nutter’s oral testimony emphasized the benefits of a single federal regulator to the reinsurance industry, such as facilitating cooperative enforcement with foreign insurance regulators.
However, Mr. Nutter cautioned that a federal “systemic risk regulator envisioned by some —one without clear, delineated lines of federal authority and strong preemptive powers—would be redundant with the existing stated-based regulatory system.” Therefore, Mr. Nutter urged Congress to consider reinsurance regulatory reform that focuses on prudential or solvency regulation, without which “a federal systemic risk regulator would: (1) be an additional layer of regulation with limited added value; (2) create due process issues for applicable firms; and (3) be in regular conflict with the existing multi-state system of regulation.”