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Insurance Commissioners Urge Congress to Maintain State Oversight of Insurers

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Federal oversight of financial markets must complement, not displace the national system of state-based insurance supervision, the National Association of Insurance Commissioners (NAIC) told Congress last week during a hearing on federal efforts to reform financial regulation.

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Testifying before the House Financial Services Committee, Connecticut Insurance Commissioner Thomas R. Sullivan stated that 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.”

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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.

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