Over the last several weeks, a variety of positions have been expressed on the optional federal charter for life insurance. From white papers drafted by trade associations to testimony before Congressional committees, the supporters of such a charter appear to be growing in number. There also appears to be near unanimity that Congress should, at a minimum, give deliberate consideration to an optional federal charter in the near term. In addition, late last week House Financial Services Committee Chairman Barney Frank indicated in a press conference that he anticipates that U.S. legislators and the administration will continue to be pressed by their European colleagues for the development of a federal insurance regulator.
Set forth below is a brief review of recent developments related to establishing an optional federal charter for life insurance. The review begins with the statements of Barney Frank, Chairman of the House Financial Services Committee, and works through the testimony given and statements made during a series of hearings held by a variety of House and Senate Committees that addressed in some manner federal insurance regulation.
Chairman Frank’s Agenda
In a March 5, 2009, press conference, Chairman Frank reiterated his interest in moving forward with addressing the need for an optional federal insurance charter for life insurers. As reported in Sutherland’s February 9, 2009, legal alert, Chairman Frank had identified the pressures facing the United States with respect to the absence of a federal insurance regulator. In his remarks during the March 5, 2009, press conference, Chairman Frank indicated that the optional federal charter will be on the Committee’s agenda, and “we will be talking to the President. We’ll be talking in April, and . . . we’re having conversations.”1 It was unclear from these remarks the extent to which Chairman Frank may have been referring to developing some sort of talking points or other materials in advance of the London meeting of the Group of Twenty scheduled to begin on April 2, 2009. As with the February press conference, Chairman Frank again focused on the pressure that the United States is likely to receive from the European Union about the fragmented nature of U.S. insurance regulation, and he indicated “we will have to think seriously about whether or not to do an optional federal charter for life insurance.”
Federal Reserve Testimony on the Optional Federal Insurance Charter
Federal Reserve Board Chairman Ben Bernanke and Vice Chairman Donald Kohn were each questioned during recent Congressional hearings on the possibility of an optional federal insurance charter. During a February 25, 2009, hearing of the House Financial Services Committee on “Monetary Policy and the State of the Economy,” Rep. Edward Royce (who co-sponsored optional federal insurance legislation in the past and is rumored to be a co-sponsor of such legislation expected to be introduced later in this session of Congress) asked Chairman Bernanke about federal insurance regulation. Chairman Bernanke responded:
But to cut to the bottom line, I think that it would be a useful idea to create a—federal option for insurance companies, particularly for large, systemically critical insurance companies. . . . [S]o I do believe than an optional federal charter would be a direction worth giving serious consideration.
On March 5, 2009, during testimony to the Senate Banking Committee in a hearing on “American International Group: Examining what went wrong, government intervention, and implications for future regulation,” Vice Chairman Kohn was questioned briefly on “the need for federal insurance regulation” and stated “the federal charter is an option you should be looking at, I think.”
House Financial Services Subcommittee on Capital Markets, Insurance, and GSEs
On March 5, 2009, the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (“Subcommittee”) of the House Financial Services Committee held a hearing on “Perspectives on Systemic Risk.” The Subcommittee heard testimony from a number of sources including The Financial Services Roundtable, the Securities Industry and Financial Markets Association (SIFMA), and the National Association of Insurance Commissioners (NAIC). While the hearing focused on the need for, structure of, and potential identity of a systemic risk regulator, there was ample discussion of insurance regulation as well.
In his opening remarks, Rep. Royce took the opportunity to indicate his support of the establishment of a federal insurance regulator, stating that “[t]he federal government and now the American taxpayers have a vested interest in the ability of this Congress to establish a world-class regulatory alternative to the fragmented 50-state system overseeing the insurance market.”
During their testimony, SIFMA and the Financial Services Roundtable indicated their preference for creating an optional federal charter. Therese Vaughan, CEO of the NAIC, focused primarily on clarifying the position that any steps to create a federal insurance regulatory alternative should not preempt the existing state regulatory framework. As Ms. Vaughan explained, “[i]f you want another set of eyes, that’s great, but don’t take our eyes away and our ability to protect our policyholders.”2