Rigorous State Oversight Protected Insurers During Financial Crisis

WASHINGTON, D.C. (Oct. 29, 2009) — Federal oversight of financial markets must complement, not displace the coordinated, national system of state-based insurance supervision, the National Association of Insurance Commissioners (NAIC) told Congress today.

Testifying before the House Financial Services Committee, Connecticut Insurance Commissioner Thomas R. Sullivan stated that the rigorous oversight by state insurance regulators allowed insurers to avoid the level of insolvencies and market meltdowns that were prevalent in other sectors of the financial community.

“One need only look no further than AIG – where the insurance subsidiaries remained solvent while the holding company spiraled into failure,” Sullivan testified. “The NAIC’s solvency and capital standards have ensured that policyholder commitments are met and companies remain stable. State regulators have placed appropriate restrictions on the investments held by insurers.”

Sullivan also stated that state insurance regulators are assessing their reliance on private financial rating agencies and set forth the NAIC’s principles for systemic risk regulation:

• Respect the strong policyholder protections states have in place, such as the “walling off” of insurance company holdings from the broader holding company.
• Federal-state coordination on a proposed Financial Services Oversight Council to facilitate information sharing.
• “Multiple sets of eyes” in the examination of holding companies which “allows for checks and balances.”

“A regime change that results in redundant, overlapping responsibilities will result in policyholder confusion, market uncertainty, regulatory arbitrage and a host of other unintended consequences,” said Sullivan.

Click HERE to view Commissioner Sullivan’s testimony.

About the NAIC

Formed in 1871, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC has three offices: Executive Office, Washington, D.C.; Central Office, Kansas City, Mo.; and Securities Valuation Office, New York City. The NAIC serves the needs of consumers and the industry, with an overriding objective of supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace. For more information, visit www.naic.org.