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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Dodd-Frank is not over. Insurance companies are not out of the woods when it comes to being labeled as too big to fail, or systemically risky in the legislative parlance.

Why would these companies come together, and for whose common good?

"From Liberty's perspective, it was an opportunity for us to share our views with other large P/C companies, and to the extent that our views were similar, and they were, we were comfortable joining together with them," said Paul Mattera, senior vice president and chief public affairs officer at Boston-based Liberty Mutual.

As Mattera explained, the coalition came together during the legislative process, had some success and decided to continue to apply its resources.

Patricia Henry, who manages global government affairs for Switzerland-based ACE, said that large P/C companies recognized they had to work together to make their case when the House first passed its version of financial regulatory reform, which included a $150 billion pre-event pool that was to be funded by taxing large financial companies. The case needed to be made that size alone didn't make a financial services firm systemically important (or risky).

"It would be a more effective message if it were coordinated with other large companies," Henry said.

Is it, however, a message that conflicts or contradicts the efforts of the insurance industry's traditional lobbyists, trade groups such as the Property Casualty Insurers Association of America (PCI) and the National Association of Mutual Insurance Companies (NAMIC)? Both Mattera and Henry stress that their coalition's efforts complement the work of these associations.

"This is a little like belts and suspenders," Mattera put it.

The latest efforts of the Property and Casualty Insurers Coalition include a Nov. 5 letter to Alastair M. Fitzpayne, deputy chair of staff at the Treasury Department, regarding the rule-making by the new Financial Stability Oversight Council (FSOC). Under Dodd-Frank, the FSOC is empowered to come up with criteria for determining if nonbank financial companies pose a threat to U.S. financial stability. The FSOC had invited public comment on the issue prior to its rule-making.

In the letter (a copy of which was obtained by Risk & Insurance®), the coalition makes three main points: that traditional P/C companies are inherently different than banks and don't pose systemic risk, that the criteria to determine this risk should focus not just on size but also on the nature of the firm's business activities and their regulation, and that there is not a "one size fits all definition" of systemic importance.

To what the 31-page letter stated, Henry added that another of ACE's concerns is also that any one country or region adopt its own regulatory framework while serious talk is in the woks for an international regime, such as the projects at the International Association of Insurance Supervisors (IAIS) and National Association of Insurance Commissioners as well as Solvency II.

"Our concern is that no one country goes off on its own while this global conversation and dialogue is occurring. I think we need to let those efforts play themselves out," she said.

It'll take some time before we know if the United States adopts or "goes off" with the FSOC criteria. Mattera said that even after the FSOC proposes final rules, the public could be allowed another comment period. Those comments might then be taken into consideration before the rules are made final. No timeframe exists for this rule-making process.

"We're still in the first or second inning," Henry said, though she is optimistic that regulators have had a chance to look at the issues thoughtfully since the panicky days of 2008 and now, backed with objective academic research, take a "different view of whether property/casualty insurers pose systemic risk."

As for the efforts of the insurance trade groups, here's what David Kodama, senior director of research for PCI, said: "From the beginning of the Dodd-Frank deliberations, PCI has worked to advance a comprehensive approach to measuring risk."

"We believe it is imperative that regulators consider multiple factors, including leverage, liquidity and cyclicality. Size alone is not a determinant of systemic risk," Kodama wrote to Risk & Insurance® in an e-mail, adding that the organization commissioned a recent report that details the development of an appropriate framework and methodology.

November 30, 2010

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