AIG's Problem Is Not Insurance Regulation by States
This argument is fundamentally flawed because
it is based on a totally inaccurate assumption of facts. First
and foremost, AIG is not an insurance company; it is a
federally-regulated holding company under the jurisdiction of a
federal regulator. It is AIG's holding company -- more
specifically, its financial products division -- that lies at
the heart of AIG's financial difficulties. And, its problems
arose under the watch of a federal regulator.
AIG's 71 state-regulated insurance companies
are financially sound. They have the capital to honor the
promises they've made to policyholders and, as the "crown
jewels" of the holding company, their assets are the basis for
the Federal Reserve's extension of credit. These entities are
all regulated by individual state insurance regulators.
This regulatory success reflects fiscally conservative state solvency regulation and state consumer-protection laws -- laws that place the interests of policyholders before those of stockholders and company management. As state officials, we intend to keep protecting consumers and ensure that the financial troubles of the parent company do not adversely affect AIG's insurance subsidiaries.
On Capitol Hill, proponents of federal
insurance regulation are supported by large insurers who seek
the same level of oversight as the investment and commercial
banks that are at the heart of most of the broader market
turmoil. Unfortunately, these special interest groups seem
intent on reducing insurance regulatory oversight -- which has,
time and again, proved to provide appropriate consumer
protections -- for their own economic ends. That's how we got
into this mess.
They easily forget that for more than a
century, the conservative accounting treatment, restrictions on
derivatives activities, and limits on investment concentrations
employed by state insurance regulators have proved their value
-- especially in regard to AIG's insurance subsidiaries.
The proposal to create a federal insurance
regulator is a solution in search of a problem. Let's let state
insurance regulators continue delivering excellent oversight,
with the protection of policyholders and the nation's financial
system remaining our top priority.
Sandy Praeger
Kansas Insurance Commissioner
President
National Association of Insurance
Commissioners
Print »