Wait to Sic Feds on Insurance Industry

2. Policy forms and practices would be more standardized.

3. Agents easily could practice across state lines. (Aren't we glad the "do-not-call" regulations have gone into effect?)

4. Lobbying by the industry would become a lot simpler, and perhaps cheaper.

5. The market for state insurance shells would crash. At present, it takes a lot of money to assemble an insurance company that can cover all 50 states if you are trying to serve the consumer market.

6. A lot of state bureaucrats would be put out of work, along with the often-ineffective baggage they have put together at the National Association of Insurance Commissioners to allow the states to cooperate better.

7. A number of state legislators would find the lack of insurance laws coming to them a welcome relief because they didn't understand most of the bills anyway.

8. Members of Congress would learn that insurance is a complex topic, and wish it hadn't come their way. Don't worry, the industry lobbyists understand the issues, and can shepherd them through.

9. The Federal Insurance Bureau might have a better chance than state regulators did of dealing with issues outside the U.S., i.e., reinsurers and direct writers that do business in the U.S., but incorporated elsewhere.

10. Being shut down nationally for market misconduct would be a risk that many insurers won't want to face. And it would be a possibility, if the regulation is done properly.

As you can see, to me, it's a mixed bag. I don't like state regulation as it is currently configured, but I also think that federal regulation would create as many problems as it solved.

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At time of publication, Merkel and/or his fund was long Allstate, MetLife and Prudential, though positions may change at any time.

David J. Merkel, CFA, FSA, is a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. Previously, he managed corporate bonds for Dwight Asset Management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Merkel cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send your comments to [e-mail].

Analyst Certification: All of the views expressed in the report accurately reflect the personal views of the research analyst about any and all of the subject securities or issuers. No part of the compensation of the research analyst named herein was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst in this report.

Merkel is employed by Hovde Capital Advisors LLC (the "firm"), a registered investment advisor with its principal office located in Washington, D.C. The Firm and/or its affiliates have or may have a long or short position or holding in the securities, options on securities, or other related investments of the issuers mentioned herein.