|
|
|
Cliston Brown
|
|
Phone:
|
|
202-639-0497
|
|
|
|
cliston.brown@pciaa.net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI Calls On Congress To Address Systemic Risk Now
|
WASHINGTON—The Property Casualty Insurers Association of
America (PCI) today called upon Congress to enact legislation addressing the
issue of systemic risk before attempting wholesale financial services
regulatory reform.
Chairman Barney Frank (D-Mass.) of the House Financial
Services Committee recently stated in a news conference that reforming systemic
risk regulation will be the committee’s near-term priority, a position PCI
endorses.
“We applaud Chairman Frank for his focus on the issue of
systemic risk,” said David A. Sampson, PCI’s president and CEO. “Strengthening
regulatory oversight of systemic risk is the critical need Congress should
address to protect our economy against a repeat of the current crisis. Before
overhauling the financial services regulatory system, it is important to first
determine what sectors of the marketplace actually create systemic risk. It
would be inefficient to impose an additional regulatory onus on companies that
do not create this type of hazard for the overall economy.”
Property-casualty companies are generally not so interconnected that they pose
a systemic risk. They do not create any counter-party risk and their exposures
are not correlated with other systemic waves or economic cycles. Even in the
current economic downturn the vast majority of property-casualty companies are
well capitalized and solvent, continuing to provide ample coverage in open
markets.
“A large auto insurance writer, for example, may create no systemic risk
despite its size,” Sampson noted. “The frequency of its auto claims is not
subject to market cycles—stock market fluctuations do not create a significant
correlating rise or fall in the amount of auto accidents. Auto insurance
contracts are not securitized or further leveraged or shorted, and there are
many competing auto insurance suppliers, so the failure of even a very large
international auto insurer would have minimal sequential systemic risk impact.
Conversely, a very small company offering financial obligation coverage, such
as credit default swaps, could have a profound impact on the overall market
because it is so interconnected that its failure would create a systemic ripple
effect.
“In short, it makes more sense to regulate based on
interconnectedness rather than on company size or market share. Systemic risk
regulation of a company that poses no systemic risk would serve no purpose.
That is why we agree with Chairman Frank that Congress needs to first address
systemic risk, before assessing other separate deficiencies highlighted by the
current crisis and returning to Congress’ long-term consideration of regulatory
reform.”
PCI recently addressed the crucial issue of systemic risk in a two-page
informational paper it provided to members of Congress and Congressional staff.
This paper can be found online at www.pciaa.net/reg-reform.
PCI is composed of more than 1,000 member
companies, representing the broadest cross-section of insurers of any national
trade association. PCI members write over $198 billion in annual premium, 40.5
percent of the nation’s property casualty insurance. Member companies write
51.6 percent of the U.S. automobile insurance market, 39.7 percent of the
homeowners market, 33.2 percent of the commercial property and liability
market, and 38.7 percent of the private workers compensation market.
###