Because the insurance industry has grown to $6.3 trillion in assets under management and $1.2 trillion in annual premiums, the regulations that govern the industry needs to be modernized, according to House Capital Markets Subcommittee Chairman Paul Kanjorski, D-Pa.
“Only ostriches can now deny the need for establishing a federal insurance resource center and a basic federal insurance regulatory structure,” Mr. Kanjorski, D-Pa., said in a statement prepared for a hearing this morning on systemic risk and insurance. “We can no longer sweep insurance regulation under the rug and cross our fingers that nothing will go wrong,” he said.
American International Group Inc. of New York, which has received $85 billion in federal funding as a result of losses from its credit default swaps operations, lacked a federal regulator with expertise in its vast insurance operations, Mr. Kanjorski said. The holding company bought a small thrift that was regulated by the Office of Thrift Supervision as its supervisor.
Several other insurance holding companies have a federal banking regulator as their primary supervisor, and more than six dozen insurance companies have no federal oversight, he said.
“Because a number of these businesses could pose systemic risk, I believe that the federal government should directly examine all complex financial holding companies, including those whose primary activities involve underwriting insurance and those who play with credit default swaps,” said Mr. Kanjorski, whose committee is part of the House Financial Services Committee, which will consider the over financial service regulatory reform package.
Mr. Kanjorski hopes that the administration will call for better oversight for insurance holding companies and “certain insurance activities,” especially those most likely to pose systemic risk.
He called for creating a federal insurance office to advise a systemic risk overseer on risks in the insurance sector. He has introduced a bill, the Insurance Information Act, which would create such an office.
Congress should examine how to promote greater uniformity in the industry, “with or without the establishment of a federal charter,” he said. Creating an optional federal life insurance charter has been controversial with state insurance regulators, who want to keep their jurisdiction, and insurance agents, who oppose it.
But the American Council of Life Insurers of Washington said that creating an optional federal regulator for life insurance is an essential part of regulatory reform.
“Absent a federal insurance regulatory agency, there will be no federal agency with the necessary expertise on insurance to either advise Congress on relevant policy matters or to implement policy with respect to life insurers,” ACLI Chairman Patrick
Baird, chief executive of Aegon USA Inc. of Cedar Rapids, Iowa., said in his prepared testimony.
