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GOP wins reshape Congress

Federal charter, nat cat changes likely off agenda

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GOP wins reshape Congress

WASHINGTON—The risk management and insurance landscape will feel some tremors from the political earthquake that occurred in last week's midterm elections, say observers.

For example, observers say the new Congress will likely shut off efforts to move quickly on major financial services reforms, such as an optional federal charter for insurers and producers. And don't expect major initiatives in natural catastrophe policy, but tort reform may get a boost, they say.

The new Republican House majority means there will be changes on the House Financial Services Committee, which has jurisdiction over insurance matters. Rep. Spencer Bachus, R-Ala., is in line to become chairman of the panel. But Rep. Ed Royce, R-Calif.—a longtime OFC advocate—has said that he intends to challenge Rep. Bachus for the chairmanship.

Rep. Scott Garrett, R-N.J., is in line to succeed Rep. Paul Kanjorski, D-Pa., as chairman of the committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Rep. Kanjorski, who advocated establishing a federal insurance office and was among the strongest backers of the federal terrorism insurance backstop, was one of several congressmen associated with insurance issues who suffered defeat in last Tuesday's voting.

Rep. Earl Pomeroy, D-N.D., former president of the National Assn. of Insurance Commissioners who pushed for pension funding relief as a member of Congress, also was defeated. In addition, Rep. Gene Taylor, D-Miss., a sharp critic of the insurance industry who advocated requiring the National Flood Insurance Program to offer windstorm as well as flood cover, lost his re-election bid.

Although Democrats retained their majority in the Senate, there will be a change at the top of the Senate Banking, Housing and Urban Affairs Committee as well. Sen. Christopher Dodd, D-Conn., chose not to seek re-election. Sen. Tim Johnson, D-S.D., is next in line to assume the chairmanship.

“We expect that Sen. Dodd will be succeeded as chairman of the Senate Banking Committee by Sen. Tim Johnson,” Joel Wood, senior vp of the Washington-based Council of Insurance Agents & Brokers, said in an e-mail. “As author of the legislation to create an optional federal charter for insurers, Sen. Johnson is viewed as very progressive on the insurance regulatory front, and unlikely to salute state insurance regulators.”

The changes in Congress will have varying degrees of impact on risk management and insurance issues, according to Washington observers.

For example, supporters and opponents of the OFC say immediate congressional appetite for such a sweeping change in insurance regulation probably is lacking given the time and energy that went into passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Insurers, “having just come through the creation of Dodd-Frank, will in the short term be much more leery of the notion they can get quality free-market solutions out of Washington,” said Jimi Grande, senior vp in the Washington office of the National Assn. of Mutual Insurance Cos., which opposes the OFC.

“If the election meant anything, it's certainly going to be a call for less Washington and more control at the state or local levels,” said Mr. Grande.

“I don't think Congress will have the appetite to take on another major regulatory overhaul in 2011,” said Leigh Ann Pusey, president and CEO of the Washington-based American Insurance Assn., which supports the OFC.

But she said “there are real-world issues out there now,” such as Solvency II. She said the AIA is ready to work with regulators to assure that U.S. companies will be competitive in the domestic and international marketplaces, but “I don't know we'll have an isolated debate on OFC.”

She said the AIA's immediate efforts will remain focused on implementation of the Dodd-Frank bill.

“Broadly speaking, the environment for business generally and insurance specifically will improve as a result of this election,” said Ben McKay, senior vp in the Property Casualty Insurers Assn. of America's Washington office. He said the election of pro-business lawmakers “alone means you're going to have more robust oversight of the Dodd-Frank law.”

A bill introduced by Rep. Richard Neal, D-Mass., that would change the U.S. Internal Revenue Code to cap the deductibility of reinsurance premiums paid by insurers to their foreign affiliates could re-emerge in the new Congress, Bradley Kading, president and executive director of the Assn. of Bermuda Insurers & Reinsurers, warned in a e-mail.

“Congress is still revenue-hungry, so action on an amendment incorporating Neal's draconian reinsurance amendment is still a risk to be managed,” said Mr. Kading. “The Republican majority in the House will want to look at corporate tax policy generally. The Neal reinsurance tax would be an item they might consider, but the context will be tax policy rather than a revenue grab.”

Natural catastrophe legislation also will be affected by the changes in Congress, particularly given the defeat of Rep. Taylor and Rep. Ron Klein, D-Fla., said NAMIC's Mr. Grande.

He said Rep. Taylor was “very instrumental in preventing meaningful flood insurance reform” because of his insistence on adding windstorm coverage. “Hopefully, going forward, we can have a new conversation about getting that program straightened out once and for all for consumers.”

He also noted that Rep. Klein's defeat could hamper efforts to have the federal government guarantee debt issued by eligible state catastrophe insurance programs that cover homeowners insurance, as called for in Rep. Klein's Homeowners' Defense Act. Mr. Grande said he hoped changes in Congress “permanently sunk” the idea of “shifting the burden to taxpayers” rather than working to solve some of the natural disaster issues.

“You're less likely to have big government programs like adding wind to flood or creating a federal backstop to (natural catastrophes),” said the PCI's Mr. McKay. He also noted the defeat of Rep. Taylor and of Florida Gov. Charlie Crist, another industry critic: “This election showed that trying to run a campaign by running down or attacking job-creating industry isn't a winning strategy.”

Regarding natural catastrophe policy, the AIA's Ms. Pusey said, “I suspect to the extent Congress acts, it will be largely in response to something if they have to. I can't see much appetite for creating new programs that cost money.”

She also said the new Congress would be wary of expanding liability in general, because it suppresses business growth.

Victor Schwartz, general counsel of the American Tort Reform Assn. in Washington, agreed that the new Congress would be less inclined to support efforts by the trial bar to expand liability. “One zone of possible tort reform advance is with respect to medical liability if there is a real overhaul of Obamacare,” he said of the federal health care reform law.