Re: Sen. Dodd Unveils Revised Reform Legislation

DATE: MARCH 15, 2010

TO: NCOIL LEGISLATORS

FROM: SUSAN NOLAN

RE: SEN. DODD UNVEILS REVISED REFORM LEGISLATION

Senate Banking Committee Chair Chris Dodd (D-CT) today unveiled a revised draft of a Restoring American Financial Stability Act—a broad regulatory reform bill that he first circulated in November. The Committee will begin marking up the bill on Monday and Sen. Dodd would like to get it out of Committee this month. Senate Majority Leader Harry Reid (D-NV) has suggested that the full Senate could approve the bill before members adjourn for their Memorial Day recess.

NEW DODD DRAFT

Regarding the insurance-related provisions—which in many cases are similar to the language included in the first draft—the bill, upon initial review, would:

Insurance Reforms

·  create an Office of National Insurance (ONI) at Treasury that:

·  could preempt certain state insurance laws/regulations inconsistent with new international insurance agreements on prudential measures

·  could recommend that a new Financial Stability Oversight Council (FSOC) designate an insurer for regulation as a nonbank financial company if it determines the company to be systemically risky

·  must study and report on how to modernize and improve insurance regulation

·  require that an insured’s home state regulate nonadmitted insurance and broker licensing

·  require that a reinsurer’s state of domicile regulate for solvency and a ceding insurer’s home state regulate credit for reinsurance

Systemic Risk

·  authorize the Federal Reserve to supervise large nonbank financial companies, including insurers, that the FSOC determines could pose a threat to U.S. financial stability

·  include an insurance expert (not a regulator) on the 9-member FSOC that would monitor financial market risks with a new Office of Financial Research (also at Treasury)

·  assess large financial companies, including insurers, to prefund a federal, FDIC-based, liquidation process

·  clarify that generally insurer failures should go through state guaranty fund systems and not through the new federal liquidation process

Consumer Protection

·  exempt insurance, and persons regulated by state insurance regulators, from the scope of a new, independent Consumer Financial Protection Bureau—which would be housed at the Fed

·  authorize grants to states that pursue certain senior protection initiatives in annuity and securities transactions

NCOIL POLICY STATEMENTS

As you know, NCOIL has adopted resolutions that

·  oppose the creation of any federal insurance office

·  support state insurance consumer protection authority and oppose proposals to grant insurance authorities to any new federal consumer protection unit

·  urge Congress to exempt the business of insurance from systemic risk regulation, federal resolution authority, and assessments to fund any new resolution regime

NCOIL has also:

·  developed model legislation to regulate certain credit default swaps (CDS) as insurance

·  expressed support for efforts to improve data sharing and coordination between regulators by suggesting that state, as well as federal, officials comprise any entity created to monitor financial markets

ADDITIONAL INFORMATION

The following is provided for your information:

·  Senate Banking Committee Summary of Legislation

·  Sen. Dodd Press Conference (3/15)

·  Dodd: Congress Will Pass Financial Reform Legislation This Year (3/15 The Hill)

·  Dodd Bill Would Have U.S. Regulators for Large Insurers (3/15 National Underwriter)

·  Dodd Proposes Wall Street Reform Package (3/15 CNN)

BACKGROUND

Since circulating the bill in November, Senators have paired off to develop a compromise draft. Sen. Dodd had worked first with Ranking Member Richard Shelby (R-AL) and later with Sen. Bob Corker (R-TN). Last week, when talks began to reach an impasse, and to facilitate a speedier process, Sen. Dodd announced that he would unveil a new draft.

A main point of contention is the location/authorities of the new consumer protection unit. The President, House bill, and many Democrats have pushed for an independent Consumer Financial Protection Agency with rulemaking, exam, and enforcement authority. Republicans have sought to locate any such agency within an existing regulator—such as the Federal Reserve—and have suggested that its authorities be limited and/or otherwise subject to oversight.

The legislation would be considered a companion to the House-passed H.R. 4173, the Wall Street Reform and Consumer Protection Act. H.R. 4173 was approved in a 223-202 vote on December 11, 2009.

For more information contact Mike Humphreys at or at 202-220-3014.