By STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
With the June passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the reinsurance industry enjoyed some success in its effort to gain more national regulation.
The sweeping financial reform included measures to prevent nondomiciliary states from having any role in solvency regulation, which reinsurers had wanted for more than two years.
Despite the win, the industry failed to gain a federal regulator, which it had hoped it would get in the wake of speculation last year from lawmakers that reinsurance and municipal bond insurance could break free of the burdens of 50-state oversight.
Reinsurers based outside the United States also enjoyed some success in relaxing collateral requirements on a state-by-state basis. Any national solution, however, to the relaxation of collateral requirements seems far off.
The establishment of a Federal Office of Insurance gave Lloyd's North American general counsel Sean McGovern some hope that the purported power of a federal insurance office to enter into international agreements might mean that such pacts could include collateral reduction.
That may, however, prove wishful thinking, considering the Dodd-Frank bill incorporated the weaker of the two Federal Insurance Office proposals in terms of state pre-emption authority.
The domestic reinsurance industry also opposed a number of federal efforts to play a stronger role in catastrophe insurance, and it was a proposed federal guarantee of state pre-and post-event bonds that raised the hackles of the Reinsurance Association of America.
RAA President Frank Nutter, in a letter to House Financial Services Chairman Barney Frank, D-Mass., said the bill would reward state-sponsored insurance programs that fail to collect enough premium to cover the risk.
A Congressional Budget Office report has slammed the federal guarantee by U.S. Rep. Ron Klein, D-Fla., as a "beach house bailout" that could cost taxpayers up to $2 billion a year, according to one estimate.
Segments of the insurance community have moved against a separate bill proposed by U.S. Rep. Richard Neal D-Mass., which would disallow deductions by primary companies of reinsurance from offshore insurers that are not subject to U.S. taxation.
Scott Clark, risk and benefits officer for the Miami-Dade County School and a member of the Risk and Insurance Management Society Inc., said the changes proposed by the bill represent another example of how poorly Washington understands the insurance industry.
"Advocates of the bill probably think they're helping out the insurance buyers by giving U.S. insurers an advantage," he said. "They're not. No one--not reinsurers, not insurers, not brokers, not commercial buyers, not personal lines buyers--will benefit here."
August 1, 2010
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