Insurers Jump on TARP Despite Concerns

The papers raise unanswered questions about the ongoing analysis of the current financial crisis:

• Were the financial models used in some of today's troubled financial institutions simply incorrect?
• Did management and/or regulators of these firms understand what the models were and were not saying?
• Was there adequate communication between the companies and their regulators?

"[T]he NAIC continues to develop and expand the use of risk-management tools in monitoring the solvency of insurance companies," Gross added.

Two proponents of federal charters for insurance companies -- the American Insurance Association, which represents property and casualty insurers, and the National Association of Insurance and Financial Advisers, or NAIFA -- were asked to comment for this article but did not respond.

Commenting on the idea of introducing federal oversight to insurance companies, Bob Hanten, an insurance agent from Minnesota, was less reticent. Hanten said:

"I have been infuriated at the movement of the feds to regulate insurance. There is not a single area in financial services under federal regulation where the federal oversight has not been a dismal failure. We have bailed the banks out every decade. In contrast, the state LHGA [Life and Health Guarantee Associations] have been able to handle large failures at no cost to the taxpayer. Look at the state response to the bad indexed annuity sales. There is now in place much higher scrutiny and much better review of products at the state level before allowing a product for sale."

Hanten, referring to the state restrictions on assets being transferred out of insurance companies, went on to say, "If it hadn't been for the NAIC, the feds would have raided the insurance companies. The states act in defense of the consumer and Paulson commented that this shows why there should be federal oversight! It is inscrutable to me. Federal oversight is unnecessary."

Congressman Kanjorski, who was re-elected in November, did not respond to specific questions sent to his press secretary but reiterated that his office stood by the position offered in a September press release in which the congressman strongly advocated passing his bill and will no doubt reintroduce legislation in the next Congress when it begins in January.