On April 14, 2011, John Huff, Director of the Missouri Department of Insurance, Financial Institutions, and Professional Registration, testified before the U.S. House of Representatives Committee on Financial Services on behalf of the National Association of Insurance Commissioners (the “NAIC”) at a hearing on “Oversight of the Financial Stability Oversight Council.” In his testimony, Director Huff was critical of the Financial Stability Oversight Council (the “FSOC”) and the U.S. Department of the Treasury (the “Treasury”). In particular, he objected to the Treasury’s refusal to permit him, as a non-voting member of the FSOC, to consult with other insurance regulators and the failure of the FSOC and the Treasury to adequately represent the interest of the insurance industry and regulators within the FSOC. He stated during his oral testimony, “today there is inadequate insurance expertise on FSOC.”
With respect to the FSOC’s role in designating “Systemically Important Financial Institutions,” Director Huff noted in his opening remarks that it is unlikely that insurers could pose systemic risk to the nation’s financial system. Further, he emphasized the robust nature of state-by-state regulation of insurance, including effective solvency standards and investment restrictions, and attributed this regulation to protecting insurers during the financial crisis that started in 2007. Director Huff urged the FSOC to view insurers separately, stating “Congress recognized these important differences in the Dodd-Frank Act. … There are different circumstances under which insurance companies can be declared systemically risky and in need of winding down – and such activity would take place pursuant to state law.”
During the hearing, Subcommittee Chairman, Representative Randy Neugebauer (TX-19), noted the lack of experienced insurance professionals in voting roles within the FSOC. He expressed concern that the FSOC’s role to identify non-bank financial institutions as systemically important is compromised because of the lack of insurance expertise due to the vacancy.
Later, Representative Mike Fitzgerald (PA-8) asked Treasury Under Secretary Goldstein when the insurance position on FSOC would be filled. Mr. Goldstein indicated that the decision is up to the President and the U.S. Senate but said “we have the benefit of Mr. Huff” and soon Michael McGraith as the Federal Insurance Officer. Representative Fitzgerald then asked whether Mr. Goldstein believed it was appropriate to move forward with designations of insurance entities without the voting insurance position filled. Mr. Goldstein indicated he did not expect designations in the near term.
Representative Fitzgerald pressed further on the issue of whether Director Huff could bring on additional assistance. Mr. Goldstein expressed the FSOC’s concern with bringing on additional people from outside the public sector leading to confidentiality issues but said that they will continue to work with Director Huff to find the appropriate balance.
For a complete copy of the testimony of Director Huff, click here.
Click here to access the link to the archived webcast of the hearing.