WASHINGTON (September 18, 2012) Last week's introduction of legislation to clarify the Federal Deposit Insurance Corporation's authority with respect to resolving failing financial institutions will help protect insurers from being on the hook for others' risky behavior, according to the National Association of Mutual Insurance Companies (NAMIC).
"When debating Dodd-Frank, there was broad, bipartisan agreement that it would be inappropriate to sweep the property/casualty insurance industry into many of the new regulatory structures being contemplated," said Jimi Grande, senior vice president of federal affairs for NAMIC. "One of those was the FDIC's 'Orderly Liquidation Authority' - unfortunately, the way the legislation was written has created the need to go back and correct several provisions."
Introduced by Reps. Bill Posey, R-Fla., and Judy Biggert, R-Ill., the legislation would do three main things. First, it would codify that insurance company insolvencies will continue to be handled by state regulators and the state guaranty system, not the FDIC. Second, the bill would prevent the FDIC from placing a lien on the assets of insurance subsidiaries when resolving a large failing financial firm. Finally, the bill prevents the FDIC from assessing insurance companies to help cover the cost of the Orderly Liquidation Fund.
"The property/casualty insurance industry is not systemically risky and it would be unfair and inappropriate to have them even involved, let alone paying for an orderly liquidation program designed to handle large, complex, highly leveraged institutions," said Grande. "NAMIC believes that the states have the expertise and track record of being able to handle company insolvencies and we should continue to utilize the mechanisms already in place rather than rely on new ones.
"We applaud Reps. Posey and Biggert for their leadership on this issue as we continue the unfinished but important task of amending the Dodd-Frank Act to ensure that it does not needlessly disrupt well-functioning insurance markets," Grande said.
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