Will the Federal Insurance Office improve insurance regulation?

University of Cincinnati Law Review

Volumn 81, Issue 2, 2012, Pages 551-599

  Brown, Elizabeth F ^a  

^a GEORGIA STATE UNIVERSITY   (United States)

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EID: 84880866483     PISSN: 00096881     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (206)

1. Only three insurance companies received aid from the federal government-AIG, Hartford Financial Services, and Lincoln National Corporation. Bailout Recipients, PROPUBLICA (Dec. 19, 2012), http://projects.propublica.org/ bailout/list.
2. Only eighteen insurers became insolvent in 2009, compared to 140 banks. Insurance Oversight and Legislative Proposals: Hearing Before the H. Subcomm. on Ins., Hous. and Cmty. Opportunity of the H. Comm, on Fin. Servs, 112th Cong. 2 (2011) (statement of Joseph Torti, III, Deputy Director of the National Association of Insurance Commissioners (NAIC) and Superintendent of Insurance and Banking, Rhode Island Department of Business Regulation) [hereinafter Torti]
3. David Goldman, CNNMoney.com's Bailout Tracker, CNNMoney, http://money.cnn. eom/news/storysupplement/economy/bailouttracker/#AIG (last visited Apr. 30, 2013) (itemizing the $182 billion committed by various federal government programs to bailout AIG);
4. U. S. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM-A NEW FOUNDATION: REBUILDING FINANCIAL SUPERVISION AND REGULATION 39-41(2009), available at http://www.financialstability.gov/docs/regs/FinalReport-web.pdf [hereinafter OBAMA WHITE PAPER] (calls for enhanced oversight of insurance sector).
5. See, e.g., U. S. DEPT, OF THE TREASURY, THE DEPARTMENT OF THE TREASURY BLUEPRINT FOR A MODERNIZED FINANCIAL REGULATORY STRUCTURE (2008)
6. OBAMA WHITE PAPER, supra note 2;
7. Committee on Cap. Mkts. Reg., THE GLOBAL FINANCIAL CRISIS-A PLAN FOR REGULATORY REFORM (May 2009), available at http://www.capmktsreg.org/pdfs/TGFC- CCMR-Report-%285-26-09%29.pdf;
8. Elizabeth F. Brown, A Comparison of the Handling of the Financial Crisis in the United States, the United Kingdom, and Australia, 55 VlLLANOVA L. REV. 509, 574-75 (2010);
9. Walter W. Eubanks, Federal Financial Services Regulatory Consolidation: Structural Response to the 2007-2009 Financial Crisis (Apr. 10, 2010), available at http://assets.opencrs.com/rpts/R41176-20100412.pdf;
10. Adrianne Fresh & Martin Neil Bailey, What Does International Experience Tell us About Regulatory Competition?, Pew Econ. Dept. Fin. Reform Project, Briefing Paper No. 6(2009), available at http://fic.wharton. upenn. edu/fic/Policy %20page/Fresh-Baily-Intemational-Final-TF-Correction.pdf;
11. Howell E. Jackson, A Pragmatic Approach to Phased Consolidation of Financial Services Regulation in the United States (Oct. 2008), available at http://www2.lse.ac.uk/fing/documents/specialPapers/2008/spl84.pdf;
12. Investment Co. Inst., FINANCIAL SERVICES REGULATORY REFORM: DISCUSSION AND RECOMMENDATIONS (Mar. 3, 2009), available at http://www.ici.org/pdf/ppr-09- reg-reform.pdf;
13. Sabrina R. Pellerin, John R. Walter, and Patricia E. Wescott, The Consolidation of Financial Market Regulation: Pros, Cons, and Implications for the United States, Fed. Res. Bank of Richmond Working Paper Series No. 09-08 (May 2009), available at http://richmondfed.org/publications/research/working- papers/2009/pdf/wp09-8.pdf.
14. Torti, supra note 1, at App. A, B; GOV'T ACCOUNTABILITY OFF., INSURANCE RECIPROCITY AND UNIFORMITY, GAO Rept. GOA-09-372 (Apr. 2009) [hereinafter GAO 2009 INSURANCE RPT.] at App. II: Comments from the National Association of Commissioners.
15. In response to a 2009 Government Accountability Office (GAO) report that was criticial of the states' and NAIC's efforts to improve regulatory uniformity in the areas of producer licensing, product approval, and market conduct rules, Andrew Beal, NAIC's Chief Operating Officer and Chief Legal Officer, commented: The report refers to AIG as 'one of our nation's largest insurers' and attributes some concern about oversight of the insurance industry to AIG's financial difficulties. In fact, AIG is a global financial services conglomerate that does business in 130 countries. AIG owns 176 other companies, in addition, to 71 U. S. state-regulated insurance subsidiaries. AIG's insurance companies remain solvent, in part, because state regulation continues to wall them off from the high-risk credit default swap activities engaged in by AIG Financial Products. AIG's Financial Products operation-created a systemic risk causing the federal government to intercede. GAO 2009 INSURANCE RPT., supra note 5, at 45.
16. See Mary Williams Walsh, Trading Risk Wasn't Just on the Fringe at A. I. G., N. Y. TIMES (Feb. 1, 2010) (noting that insurers were the third biggest issuers of CDSs and Alico, a subsidiary of AIG, was heavily involved in issuing CDSs).
17. N. Y. Dep't of Ins., Op. Re: Credit Default Option Facility, 2000 NY Insurance GC Opinions LEXIS 144 (2000).
18. Arthur Kimball-Stanley, Insurance and Credit Default Swaps: Should Like Things Be Treated Alike?, 15 CONN. INS. L. J. 241, 246-47 (2008).
19. See Commodity Futures Modernization Act of 2000 (codified at 7 U. S. C. § 2 (2000)).
20. Pub. L. No. 111-203, 124 Stat. 1376 (2010)
21. (to be codified as scattered sections of 12, 15 U. S. C.) [hereinafter DODD-FRANK ACT].
22. 31 U. S. C. §313 (p) (1) (2012).
23. Mark A. Hoffman, Federal Insurance Office Reports to Be Released in Summer: McRaith, Business INSURANCE (Mar. 13, 2013), http://www. businessinsurance.com/article/20130313/NEWS04/130319929?tags=|59|306|76|73|80.
24. Susan Randall, Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners, 26 Fla. St. U. L. REV. 625, 630 (1999). Many of the first commissions were not independent agencies or entities, but were instead comprised of other state officials with other duties.
25. LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN Law 332 (3rd ed. 2005).
26. Paul v. Virginia, 75 U. S. 168, 183 (1868).
27. United States v. South-Eastern Underwriters Ass'n, 322 U. S. 533, 552-53 (1944).
28. SHEILA BAIR, CONSUMER RAMIFICATIONS OF AN OPTIONAL FEDERAL CHARTER FOR LIFE INSURERS 6-9(2004), available at http://vote.ebaymainstreet.com/afcAJMass- Report.pdf; Randall, supra note 16, at 633.
29. Ch. 20, § 1, 59 Stat. 33 (1945)
30. (codified at 15 U. S. C. § 1011 (2012)).
31. Pub. L. No. 106-102, § 1, 113 Stat. 1338 (1999)
32. (codified in scattered sections of 12, 15, 16, 18 U. S. C.). 89
33. Stat. 162 (1933).
34. GLBA repealed Section 20 of Glass-Steagall, which prevented any Federal Reserve member bank from being affiliated with an entity principally engaged in securities and Section 33, which banned interlocking managements between Federal Reserve member banks and securities firms. GLBA, 12 U. S. C. § 377 (a)
35. U. S. C. § 78 (b) (2010).
36. Ch. 240, 70 Stat. 133 (1956)
37. (codified at 12 U. S. C. §§ 1841-49).
38. The Basel Committee on Banking Supervision and the Joint Forum on Financial Conglomerates defines financial conglomerates as "any group of companies under common control whose exclusive or predominant activities consist of providing significant services in at least two different financial sectors." TRIPARTITE GRP. OF BANK, SEC., AND INS. REGULATORS, THE SUPERVISION OF FINANCIAL CONGLOMERATES ¶ 36 (July 1995), available at http://www.bis.org/publ/bcbs20.pdf. This Article will use this definition when referring to financial conglomerates. Financial conglomerates are distinguishable from "mixed conglomerates", in which groups of commercial or industrial enterprises include a financial institution as part of their structure. Id. While mixed conglomerates may raise some of the same regulatory and supervisory issues as financial conglomerates, such concerns are beyond the scope of this article.
39. U. S. C. §§ 78c (a) (4), (a) (5) (2010).
40. GLBA amended those sections to eliminate the exception for banks. 15 U. S. C. § 78c. If a bank's securities activities do not fall into one of the other categories of permissible bank securities activities set forth in GLBA, then the bank is required to transfer those broker-dealer activities to an affiliated broker-dealer.
41. 15 U. S. C. § 6701. GLBA did put a few limitations on the otherwise unfettered ability of the states to regulate insurance. For example, GLBA § 104 (c) prohibits states from preventing or restricting a depository institution or an affiliate of such institution from being affiliated with any person except in certain limited circumstances related to insurers. Id. § 6701 (c) (1). Prior to GLBA's enactment, nine states and territories prohibited banks from affiliating with insurance companies.
42. CONFERENCE OF STATE BANK SUPERVISORS, A PROFILE OF STATE-CHARTERED BANKING 117-19 (17th ed. 1998). Those states were Alaska, Arkansas, Colorado, Georgia, New York, Puerto Rico, Tennessee, Vermont, and West Virginia. Id.
43. 15 U. S. C. §6751 (2010).
44. Stale Insurance Regulation: Efforts to Streamline Key Licensing and Approval Processes Face Challenges: Hearing Before the H. Subcomm. on Capital Mkts., Ins. and Gov't Sponsored Enters.of the H. Comm, on Fin. Servs., 107th Cong. (2002) (statement of Richard J. Hillman, Director, Financial Markets and Community Investment, General Accounting Office) [hereinafter Hillman].
45. NAIC Producer Licensing Assessment Aggregate Report of Findings (February 19, 2008), http://www.naic.org/documents/committees-ex-pltf-plwg-PLC- assessment-aggregate-report.pdf
46. [hereinafter NAIC PRODUCER LICENSING ASSESSMENT];
47. Shanique Hall, Producer Licensing and NARABII, CIPR NEWSLETTER (Apr. 2012), at n. 23, http://www.naic.org/cipr-newsletter-archive/vol3-prod- licensing-narab2.htm.
48. See, e.g., CA Ins. Code § 1215.7 (b) (examinations of affiliates done through a supervisory college comprised of state, federal, and international regulators);
49. N. Y. Code § 1504 (holding company examinations permitted only if the holding company's operations are deemed to materially impact an insurance company). The differences between how the United States and Europe regulate financial conglomerates with insurance affiliates continues to be a source of international conflict.
50. See Louie Woodall, Group Supervision and Solvency Vex US and EU Regulatory Talks, RlSK. NET (Mar. 18, 2013) (discussing differences in group supervision).
51. 12 U. S. C. § 1843 (k) (1999).
52. BD. OF GOVERNORS OF THE FED. RESERVE SYS. AND U. S. DEP'T OF THE TREASURY, REPORT TO THE CONGRESS ON FINANCIAL HOLDING COMPANIES UNDER THE GRAMM-LEACH-BLILEY ACT 3 (2003).
53. Financial Holding Companies, BOARD GOVERNORS FED. RES. SYS. (Aug. 6, 2004) (on file with the author) [hereinafter Pre-Crisis FHCs], In fact, only six of the top twenty-five largest U. S. financial services firms by revenue in 2006 were registered as FHCs.
54. See PRE-CRISIS FHC;
55. INS. INFO. INSTITUTE, AND & THE FIN. SERVICES ROUNDTABLE, THE FINANCIAL SERVICES FACT BOOK 2008 9 (2008) [hereinafter Fact Book 2008].
56. Examination of the Gramm-Leach-Bliley Act Five Years After Its Passage: Hearing Before the S. Comm, on Banking, Hous. and Urban Affairs of the H. Comm. On Fin. Servs., 108th Cong. 69 (2004) (statement of Steve Bartlett, President and Chief Executive Officer, Financial Services Roundtable).
57. As mentioned in note 46, eleven of the twenty-five largest U. S. financial services firms by revenue in 2006 were insurance firms. Seven of those insurance firms owned thrifts, which are more commonly known as savings and loan companies, and several of them would become targets for increased oversight by the Federal Reserve following the crisis. FACT BOOK 2008, supra note 46, at 9;
58. The Allstate Corporation, Annual Report, (Form 10-K) (Feb. 21, 2007), at 14;
59. Arthur D. Postal, Hartford Agrees to Sell Thrift, LifeHealthPro (May 23, 2011), http://www.lifehealthpro.com/2011/05/23/hartford-agrees-to-sell-thrift;
60. Elizabeth D. Festa & Arthur D. Postal, The Fed's Hit List, LIFEHEALTHPRO (May 2, 2012), http://www.lifehealthpro.com/2012/05/02/the-feds- hit-list.
61. This problem is illustrated by the problems that arose in getting a new product, home equity insurance, approved in New York. Andrew Caplin et al, HOME EQUITY INSURANCE: A PILOT PROJECT (Yale Int'l Ctr. For Fin. Working Paper No. 03-12, 2003) at 24-28. New York ultimately concluded that home equity insurance was not insurance as New York defined it and so did not need to be licensed as such in New York. New York's approach differed from those adopted in California and Illinios. Id. at 5-7. Because insurance is regulated at the state level, insurance firms need approvals from each state in which they want to offer a completely new product. To offer a new product in all fifty states, requires going through fifty approval processes similar to the one that home equity insurance went through in the state of New York.
62. See APPLEMAN ON INSURANCE 2d § 1.03 (2007).
63. See NAT'L ASS'N OF INS. COMM'RS, 2011 INSURANCE DEPARTMENT RESOURCES REPORT (2011) [hereinafter NAIC 2011 REPORT], NAIC defines "producer" as a person or entity "[licensed to offer several insurance services." Id. In most cases, a producer will be a company, rather than an individual.
64. For example, New York and California require criminal background checks before allowing a person to sell insurance within their borders because they are trying to deter fraud, but some states do not require such checks. See Hillman, supra note 36, at 5. Other states, like Kentucky and Ohio, reportedly would return filings if they had been stapled improperly, which hardly seems like an important policy rationale. Andrew G. Simpson, Leave-No-State-Regulation-Behind, INS. J. (Sept. 6, 2004), http://www.insurancejoumal.com/magazines/editorsnote/ 2004/09/06/45946.htm.
65. NAIC PRODUCER LICENSING ASSESSMENT, supra note 37, at 2 n. l and Exhibits A, C, and D; Hall, supra note 37, at n. 2.
66. National Association of Registered Agents and Brokers Reform Act of 2008, H. R. 5611, 110th Cong., 2nd Sess. (Sept. 22, 2008), http://www.govtrack.us/ congress/bills/110/hr5611/text; govTrack.com
67. H. R. 5611: National Association of Registered Agents and Brokers Reform Act of 2008, http://www.govtrack.us/congress/bills/l 10/hr5611 [hereinafter govTrack.com NARAB 2008].
68. NAIC PRODUCER LICENSING ASSESSMENT, supra note 37, at 2 n. 1; Hall, supra note 37.
69. GAO 2009 INSURANCE REPORT, supra note 5, at 14; Hall, supra note 37. The forty-seven states that have agreed to reciprocity enacted some version of the PLMA. See Hall, supra note 37.
70. News Release: Interstate Insurance Compact Open for Business, INTERSTATE INS. PRODUCT REG. COMMISSION (June 2, 2007), http://insurancecompact.org/ releases/open-for-business.htm.
71. About the IIPRC, INTERSTATE INS. PRODUCT REG. COMMISSION, http://www.insurancecompact.org/about.htm (last visited Apr. 30, 2013).
72. Ruth Gastel, Optional Federal Charter, INSURANCE INFORMATION INSTITUTE INSURANCE ISSUES UPDATE (Aug. 2003);
73. Insurance Product Approval: The Need For Modernization: Hearing Before the H. Subcomm. on Capital Mkts., Ins., and Gov't Sponsored Enter, of the H. Comm, on Fin. Servs., 107th Cong. 13 (2001) (statement of William B. Fisher, Vice President and Associate General Counsel, Massachusetts Mutual Life Insurance Company).
74. GAO 2009 INSURANCE RPT., supra note 5, at 5.
75. See, e.g., FINANCIAL SERVICES AUTHORITY, ANNUAL REPORT 2007/08, 104-09 (2008) [hereinafter UK FSA 2007/08 ANNUAL Rept.]. The UK FSA raised the following caveats regarding the comparability of the data collected: (1) the figures do not necessarily relate to the same accounting period and may not have been compiled on the same basis; (2) labor and other costs vary between countries; (3) variations in exchange rates will affect the results expressed in a single currency; (4) the scope of the responsibility of the regulatory authorities differ from one country to the next; and (5) material differences in the size and nature of the financial services industries in each country exist. Id. at 105. The UK FSA stopped including such data beginning with its Annual Report 2009/10. Financial Services Authority, Annual Report 2008/09, 122-23 (2009);
76. FINANCIAL SERVICES AUTHORITY, ANNUAL REPORT 2009/10 (2010);
77. FINANCIAL SERVICES AUTHORITY, ANNUAL REPORT 2010/11 (2011);
78. FINANCIAL SERVICES AUTHORITY, ANNUAL REPORT 2011/12 (2012).
79. See UK FSA 2007/08 ANNUAL REPT, supra note 69, at 104-09. The amounts cited in the original report were in pounds. For purposes of this paper, the exchange rate used to convert the amounts cited in the UK FSA's report back into dollars was the U. S. dollar-pound exchange rate for Apr. 30, 2008 of $1.9847=£1.
80. Historical Rate for the UK Pound, BOARD GOVERNORS FED. RES., www.federalreserve.gov/releases/Hl 0/Hist/datOO-uk.htm (last visited Apr. 30, 2013) The U. S. total cited in the report was based on information provided by NAIC. See UK FSA 2007/08 ANNUAL REPT., supra note 69, at 107.
81. UK FSA 2007/08 ANNUAL REPT., supra note 69, at 107. The amounts cited in the original report were in pounds. For purposes of this paper, the exchange rate used to convert the amounts cited in the UK FSA's report back into dollars was the U. S. dollar-pound exchange rate for Apr. 30, 2008 of $1.9847=£1. Historical Rate for the UK Pound, BOARD GOVERNORS FED. RES., www.federalreserve.gov/releases/Hl 0/Hist/dat00-uk.htm (last visited Apr. 30, 2013).
82. NAIC 2011 REPORT, supra note 51, at 32, 36.
83. Id. The top five states based on the number of domestic insurers were: New York (616), Florida (501), Texas (430), Wisconsin (390) and Illinois (358). Id. If captive insurers were included, Vermont would have more domestic insurance companies than New York. Captive insurers are insurance companies formed to provide insurance and risk management services to their parent company and its affiliates. States tend to impose weaker regulations and few consumer protections on captive insurers. Lynnley Browning, Vermont Becomes 'Offshore' Insurance Haven, N. Y. TIMES, Apr. 4, 2007.
84. NAIC statistics regarding domestic insurance companies used to include captive insurers. However, when the domestic insurers included captive insurers, the number of domestic insurers in Vermont surpassed the number in New York in 2005. NAT'L ASS'N OF INS. COMM'RS, 2004 INSURANCE DEPARTMENT RESOURCES REPORT 46 (2005) (shows New York has a total of 617 while Vermont has 546);
85. NAT'L ASS'N OF INS. COMM'RS, 2005 INSURANCE DEPARTMENT RESOURCES REPORT 46 (2006) (showes New York has a total of 559 while Vermont has a total of 567). Vermont has made a concerted effort to market itself as a haven for captive insurance companies. Browning, supra. The captive insurance sector is one of the ten largest employers in Vermont and the premiums paid account for 2 percent of Vermont's state budget. Id.
86. NAIC RESOURCES REPORT 2011, supra note 51, at 36.
87. See STEVEN W. POTTIER, STATE REGULATION OF LIFE INSURERS: IMPLICATIONS FOR ECONOMIC EFFICIENCY AND FINANCIAL STRENGTH (2007), available at http://www.aria.org/meetings/2007papers/IIB%20-%202%20-%20Pottier.pdf.
88. See generally APPLEMAN, supra note 49.
89. Outlining all of the different ways that derivatives are used as substitutes for insurance is beyond the scope of this paper. For a fuller discussion of some of these instruments, see PETER CARAYANNOPOULOS ET AL., INSURANCE SECURITIZATION: CATASTROPHIC EVENT EXPOSURE AND THE ROLE OF INSURANCE LINKED SECURITIES IN ADDRESSING RISK (2003);
90. J. David Cummins, CAT Bonds and Other Risk-Linked Securities: State of the Market and Recent Developments (2007), available at http://ssm.com/abstract= 1057401;
91. Tamar Frankel & Joseph W. LaPlume, Securitizing Insurance Risks, 19 ANN. REV. BANKING L. 203 (2000);
92. Richard W. Gorvett, Insurance Securitization: The Development of a New Asset Class (1999), available at http://www.casact.org/pubs/dpp/dpp99/99dppl33. pdf;
93. Changki Kim, Taehan Bae & Reginald J. Kulperger, Securitization of Motor Insurance Loss Rate Risks (2008), available at http://ssm.com/abstract=l 134606.
94. Harry Wilson, A Short History of Credit Default Swaps, TELEGRAPH (Sept. 6, 2011, 7:44 PM), available at http://www.telegraph.co.uk/finance/newsbysector/ banksandfinance/8745511/A-short-history-of-credit-default-swaps.html.
95. Financial Guarantee Insurance, FARLEX FINANCIAL DICTIONARY (2011), available at http://financial-dictionary.thefreedictionary.com/ Financial+Guarantee+Insurance.
96. This prohibition on banks and insurance company affiliations was eroded over time and eventually eliminated with the passage of the Gramm-Leach-Bliley Act. See GLBA. 12 U. S. C. §§ 78, 377 (2010).
97. See Commodity Futures Modernization Act of 2000 (codified at 7 U. S. C. § 2 (2000)) at 7 U. S. C. § 27f (2010). Gaming laws generally prohibit or severely limited gambling. Bucket shop laws prohibit bets being made on changes in the prices of stocks or commodities, in which the parties never intend to actually deliver the stocks or commodities involved.
98. The Role of Financial Derivatives in the Current Financial Crisis: Hearing Before the S. Comm on Agric., Nutrition, and Forestry, 110th Cong. 2-3 (2008) (statement of Eric Dinallo, Superintendent, New York State Insurance Department) [hereinafter Dinallo].
99. See Michael Pohly & James Vore, Insurers Eye Derivatives for Credit Risk, 106 NAT'L UNDERWRITER/PROP. CASUALTY RISK & BENEFITS MGMT 38 (2002);
100. René M. Stulz, Credit Default Swaps and the Credit Crisis, 24 J. ECON. PERSPECTIVES 73, 78 (2010).
101. N. Y. INSURANCE LAW § 1101 (McKinney 2011). New York defines a fortuitous event as "any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party." Id.
102. N. Y. Dep't of Ins., Op. Re: Credit Default Option Facility, 2000 NY Insurance GC Opinions LEXIS 144 (2000).
103. N. Y. INSURANCE LAW § 6901 (j-1) (McKinney 2011).
104. INS. INFO. INST, THE FINANCIAL SERVICES FACT BOOK 2010 95 (2010).
105. National Ass'n of Ins. Comm'rs., Weather Financial Instruments (Temperature): Insurance or Capital Markets Products? (NAIC Draft White Paper, Sept 2, 2003) [hereinafter NAIC WHITE Paper]
106. Robert F. Schwartz, Risk Distribution in Capital Markets: Credit Default Swaps, Insurance and a Theory of Demarcation, 12 FORDHAM J. CORP. & FIN. L. 167, 184-86 (2007).
107. See, e.g., Thomas Lee Hazen, Disparate Regulatory Schemes for Parallel Activities: Securities Regulation, Derivatives Regulation, Gambling, and Insurance, 24 ANN. REV. BANKING & FIN. L. 375, 401-12, 416-18 (2005) (noting that derivatives often fail to meet insurable interest requirements needed to be classified as insurance);
108. M. Todd Henderson, Credit Derivatives are not "Insurance", 16 Conn. INS. L. J. 1 (2009); Kimball-Stanley, supra note 10, at 246-47 (discussing the Robin Potts, QC, opinion relied upon by ISDA and the Bond Market Association on why CDSs are not insurance); Schwartz, supra note 114, at 174 ("The aim of this article is to develop an explanatory theory of why CDS are not insurance.");
109. Jeffrey Thomas, Insurance Perspectives on Federal Financial Regulatory Reform: Addressing Misunderstandings and Providing a View from a Different Paradigm, 55 VlLLANOVA L. R. 773, 776-78(2010), available at http://www.law.villanova.edu/lawreview/wp-content/uploads/201 l/12/VLR308.pdf (CDSs are not insurance because they do not involve pooling).
110. Danny Hakim, New York to Regulate Credit Default Swaps, N. Y. TIMES (Sept. 23, 2008), http://www.nytimes.com/2008/09/23/business/23swap. html.
111. Leah Campbell & Robin Choi, State Initiatives to Regulate Credit Default Swaps Deferred Pending Federal Action, METROPOLITAN CORP. COUNSEL (Sept. 2009), at 20, available at http://www.metrocorpcounsel.com/pdfy2009/September/ 20.pdf.
112. See John A. Cooke & Harold D. Skipper, An Evaluation of the US Insurance Regulation in a Competitive World Insurance Market 3 (American Ins. Ass'n, June 27, 2008).
113. DATAMONITOR, INDUSTRY PROFILE: INSURANCE IN THE UNITED STATES 12 (2011) [hereinafter DataMonitor].
114. Robert B. Ahdieh, Foreign Affairs, International Law, and the New Federalism: Lessons from Coordination 26 (Emory Law and Economics Research Paper No. 08-30, 2008), available at http://ssm.com/abstract=l 272967.
115. General Agreement on Trade in Services, WORLD TRADE ORGANIZATION, http://www.wto. Org/English/docs-e/legal-e/legal-e.htm#services (follow link under the Uruguay Round Agreements, Annex 1, Annex IB General Agreement on Trade in Services (GATS) (last visited May 17, 2013).
116. See North American Free Trade Agreement, NAFTA SECRETARIAT, http://www.nafta-sec-alena.org/en/view.aspx?x=343 (last visited May 17, 2013).
117. Directive 2009/138/EC of the European Parliament and of the Council of 25 Nov. 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ. do?uri=OJ:L:2009:335:0001:0155:EN:PDF [hereinafter SOLVENCY II].
118. Meg Fletcher, U. S. Regulators Seek to Increase Visibility, INSURANCE NEWS NET (Jan. 5, 2009), http://insurancenewsnet.com/print.aspx?id= 102303&type=annuity.
119. See U. S. CONST, art. I, §§ 8-9 (giving to Congress the power to regulate commerce with foreign powers and prohibiting the states from negotiating international agreements with foreign powers without the consent of Congress).
120. See U. S. CONST., art. I, § 8.
121. INT. ASS'N OF INS. SUPERVISORS, ANNUAL REP. 2006-07, at iv. (2007). Each of the fifty states, the District of Columbia, and the U. S. territories is a member of IAIS. See Membership List, Nat. Ass'n OF Ins. Commissioners (2012), http://www.naic.org/documents/members-membershipli st.pdf.
122. See, e.g., INT. ASS'N OF INS. SUPERVISORS, SUPERVISOR STANDARD OF LICENSING (2008);
123. INT. ASS'N OF INS. SUPERVISORS, PRINCIPLES OF CAPITAL ADEQUACY AND SOLVENCY (2002);
124. INT. ASS'N OF INS. SUPERVISORS, SUPERVISORY STANDARD ON GROUP COORDINATION (2000), available at http://www.iaisweb.org/About-the-IAIS-28.
125. See INT. ASS'N OF INS. SUPERVISORS BY-LAWS, art. 12(1)(2005), available at http://www.iaisweb.org/-temp/By-laws-2005-edition.pdf.
126. The IAIS Common Structure for the Assessment of Insurer Solvency, INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS 14 (February 2007), http://www.iaisweb.org/view/element-href.cfm?src= 1/85.pdf.
127. Andrew F. Giffin & Mike Lombardi, Financial Services: Towards a Global Solvency Standard, 2 Emphasis 18, 20(2006), available at http://www.towersperrin. com/tp/getwebcachedoc7we bc=TILlAJSA/2006/200605/ SolvenyQ2523.pdf.
128. Richard Crump, Solvency II: Setting a Global Standard, REACTIONS (Aug. 1, 2008), available at http://www.reactionsnet.com/Article/2148178/Solvency-II- Settmg-a-global-standard.html.
129. Pursuant to the Congressional requirement in the Emergency Economic Stabilization Act of 2008, the SEC issued a report in December on impact of mark-to-market accounting in the current financial crisis. SEC, REPORT AND RECOMMENDATIONS PURSUANT TO SECTION 133 OF THE EMERGENCY ECONOMIC STABILIZATION ACT OF 2008: MARK-TO-MARKET ACCOUNTING (2008), available at http://www.sec.gov/ news/studies/2008/marktomarketl23008.pdf. This report concluded that mark-to-market accounting had not played a significant role in the current crisis and that the benefits to investors from the transparency provided by mark-to-market accounting outweighed any costs associated with the practice. Id. at 7-8. The report did make some recommendations about how fair value and mark-to-market accounting could be improved. Id. at 7-10. This report, however, has not halted the ongoing debate about whether mark-to-market accounting contributed to the current financial crisis. Even before the current financial began, some academics raised the possibility that mark-to-market accounting might cause a financial crisis when one would not have occurred using traditional accounting.
130. See, e.g., Franklin Allen & Elena Carletti, Mark-to-Market Accounting and Liquidity Pricing (Financial Institutions Center, Wharton School of Business, University of Pennsylvania, No. 06-15 2006), available at http://fic.wharton. upenn. edu/fic/papers/06/0615.pdf.
131. Overview, FINANCIAL STABILITY BOARD, http://www.financialstabilityboard. org/about/overv iew.htm (last visited May 17, 2013).
132. Former Federal Reserve Chairman Paul Volker originally proposed this rule in 2009 and, as a result, the rule now bears his name. James B. Stewart, Volcker Rule, Once Simple, Now Boggles, NY TIMES (Oct. 21, 2011), http://www.nytimes.com/2011/10/22/business/volcker-rule-grows-from-simple-to- complex.html?pagewanted=all.
133. PAULSON TREASURY BLUEPRINT, supra note 4.
134. DODD-FRANK ACT, supra note 12;
135. U. S. C. § 313 (2010).
136. Id. §313 (c) (1) (C). The Dodd-Frank Act does not use the term "systemically important financial institutions", or "SIFIs", but its language embodies the same concept and as a result, the term is widely used as short-hand for the actual language in the Dodd-Frank Act. See, e.g., Systemically Important Financial Institutions and the Dodd-Frank Act: Hearing Before the H. Subcomm. on Fin. Inst, and Consumer Credit of the H. Comm, on Fin. Servs, 112th Cong. 1 (2012) (statement of Michael S. Gibson, Director, Div. of Banking Supervision and Reg., Bd. of Gov. of the Fed. Res. System). The international Financial Stability Board defines a "systemically important financial institution" as one "whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity."
137. FIN. STABILITY BD., POLICY MEASURES TO ADDRESS SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONS (Nov. 4, 2011), http://www.financialstabilityboard.org/ publications/r-l 11104bb.pdf. FSOC can classify a non-bank financial company as subject to supervision by the Federal Reserve if the "material financial distress at the U. S. nonbank financial company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the U. S. nonbank financial company, could pose a threat to the financial stability of the United States."
138. Dodd-Frank Act, supra note 12;
139. U. S. C. § 5323 (a) (l).
140. 12 U. S. C. §5321 (b) (2).
141. Id. The NAIC appointed John M. Huff as the current state insurance commissioner on the FSOC. About the Director, MISSOURI DEPT. OF INS., FIN. INST., & PROF. REGISTRATION, http://difp. mo.gov/director.php (last visited May 17, 2013).
142. Id. § 5321 (b) (1) - Currently, S. Roy Woodall, Jr. holds the position of the independent insurance expert on FSOC. Financial Stability Oversight Council, U. S. DEPT. OF THE TREASURY, http://www.treasury.gov/ initiatives/fsoc/about/council/Pages/roy-woodall.aspx (last visited May 17, 2013).
143. Definitions of "Predominantly Engaged In Financial Activities" and "Significant" Nonbank Financial Company and Bank Holding Company, 78 Fed. Reg. 20, 756 (Apr. 5, 2013) (to be codified at 12 C. F. R. pt. 242), available at http://www.gpo.gov/fdsys/pkg/FR-2013-04-05/pdf/2013-07688.pdf.
144. Dodd-Frank Act, supra note 12;
145. U. S. C. § 313 (c) (1) (D).
146. Press Release, House Committee on Fin. Services, Oxley Outlines Road Map to State-Based Insurance Regulatory Reform (Mar. 15, 2004).
147. SMART ACT, supra note 3, § 204.
148. For example, the U. S. Supreme Court has stated that Congress could not compel the states to enact or enforce a federal regulatory program and Congress imposing what insurance laws the states must enforce would potentially violate this holding. See New York v. United States, 505 U. S. 144, 188 (1992).
149. Missouri v. Holland, 252 U. S. 416 (1920).
150. Press Release, U. S. Dept, of the Treasury, Testimony of Federal Insurance Office (FIO) Director Michael McRaith Before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity on U. S. Insurance Sector: International Competitiveness and Jobs (May 17, 2012), available at http://www.treasury.gov/press-center/press-releases/Pages/tgl585. aspx [hereinafter McRaith Testimony 2012]
151. See SOLVENCY II, supra note 131, at Art. 172, 227.
152. Elizabeth Festa with Dave Postal, Neugebauer to FIO: I'm Concerned About IAIS Proposals, LIFEHEALTHPRO (Mar. 26, 2013), http://www.lifehealthpro.com/ 2013/03/26/neugebauer-to-fio-im-concerned-about-iais-proposal.
153. Elizabeth D. Festa, IAIS Shows its Hand on FSB, Extends ComFrame Debate, LIFEHEALTHPRO (Apr. 6, 2013), http://www.lifehealthpro.com/2013/04/06/iais- shows-its-hand-on-fsb-extends-comframe-debate (citing comments from Yoshi Kawai, Secretary General of the IAIS).
154. DODD-FRANK ACT, supra note 12;
155. U. S. C. § 5323.
156. Press Release: MetLife, MetLife Sheds Bank Holding Company Status with Approvals from the Federal Reserve and FDIC, METLIFE (Feb. 14, 2013), http://investor.metlife.com/phoenix.zhtml?c=l 21171 &p=irol- newsArticle&id= 1785289.
157. Although FSOC has not yet named MetLife as a SIFI, MetLife's chief executive office attempted to deter them from doing so when he testified before the House Financial Services Committee in early Mar. 2013. Danielle Douglas, MetLife CEO Makes Case Against Being Deemed 'Systemically Important', WASH. POST (Mar. 7, 2013), http://aiticles.washingtonpost.com/2013-03-07/business/ 37516979-1-financial-firms-tougher-oversight-kandarian.
158. Andrew Frye & Charles Mead, MetLife Leads Insurers Lower Afier Failed Fed Test, BLOOMBERG BUSINESSWEEK (Mar. 14, 2012), http://www.businessweek.com/ news/2012-03-14/metlife-leads-life-insurers-lower-as-firm-fails-fed-capital- test.
159. Nat'l Assoc. Ins. Com. & Ctr. For Ins. Policy and Research, Government Relations Issues Brief, Federal Reserve Supervision and Basel III: Insurer Impact, http://Avww.naic.org/documents/topics-fed-and-basel-3.pdf;
160. see also, Elizabeth Festa, With IAIS in Town, Focus is on Avoiding Bank-centric Standards, LIFEHEATHPRO (Oct. 4, 2012), http://www.lifeh ealthpro.com/2012/10/04/with-iais-in-town-focus-is-on-avoiding-bank-centri;
161. Examining the Impact of Proposed Rules to Implement Basel III Capital Standards: Hearing Before the H. Subcomm. on Ins., Hous. and Cmty. Opportunity of the H. Comm, on Fin. Servs, 112th Cong. 2-3 (Nov. 29, 2012) (statement of Kevin M. McCarty, President of NAIC, and Commissioner of the Florida Office of Insurance Regulation);
162. Fed. Advisory Board on Ins., Meeting Minutes (Nov. 14, 2012) at 8, available at http://www.treasury.gOv/about/organizational-stnicture/ofrices/ Documents/l l-14%20faci%20min%20fin.pdf [hereinafter FACI Nov. 2012 Meeting].
163. See DODD-FRANK ACT, supra note 12;
164. U. S. C. §§ 5321 (b) (1) (2).
165. Links to FSB members, FINANCIAL STABILITY BOARD, http://www. financialstabilityboard.org/members/links.htm (last visited May 17, 2013) [hereinafter FSB Membership].
166. Elizabeth Festa, With IAIS in Town, Focus is on Avoiding Bank-centric Standards, LlFEHEALTHPRO (Oct. 4, 2012), http://www.lifehealthpro.eom/2012/10/ 04/with-iais-in-town-focus-is-on-avoiding-bank-centri.
167. Dodd-Frank Act, supra note 12; 31 U. S. C. § 313.
168. H. COMM, ON FIN. SERVICES, 1 13TH CONG., OVERSIGHT PLAN 16 (Feb. 15, 2013), available at http://financialservices.house.gov/about/oversight.htm [hereinafter OVERSIGHT PLAN].
169. AM. BANKERS INS. ASS'N, COMPARISON OF OPTIONAL FEDERAL INSURANCE CHARTER BILLS (Feb. 20, 2002), http://www.aba.com/ABLA/Pages/Issue-RM.aspx (click on the link "Comparison of Optional Federal Charter Bills (3-1-02) " under the heading Testimony);
170. ACLI Draft Proposal on Federal Insurance Charter, LEBOEUF, LAMB, GREENE & MACRAE LLP (Apr. 20, 2001) (on file with author);
171. Comparison of ACLI, ABIA and ALA Federal Insurance Charter/Licensing Proposals, LEBOEUF, LAMB, GREENE & MACRAE LLP (July 30, 2001) (on file with author).
172. Michael T. McRaith, Financial Stability Oversight Council, U. S. Dept, of the Treasury, http://www.treasury.gov/initiatives/fsoc/about/council/Pages/ michael-mcraith.aspx (last visited Apr. 30, 2013) [hereinafter McRaith BIOGRAPHY];
173. Kevin Lyons, Illinois Insurance Director Picked to Lead New Federal Insurance Office, INSURANCEQUOTES. COM, http://www.insurancequotes.com/federal- insurance-office/;
174. McRaith to Lead New Federal Insurance Office., INS. J. (Mar. 18, 2011), http://www.insurancejournal.com/news/national/20U/03/18/190630.htm.
175. Press Release, U. S. Dept, of the Treasury, Written Testimony of Director of the Federal Insurance Office Michael T. McRaith (Oct. 25, 2011), http://www.treasury.gov/press-center/press-releases/Pages/tgl339.aspx;
176. Press Release, U. S. Dept, of the Treasury, Remarks by Federal Insurance Office Director Michael McRaith at Property/Casaulty Insurance Joint Forum (Jan. 10, 2012), http://www.treasury.gov/press-center/press-releases/Pages/tgl393. aspx [hereinafter McRaith Remarks]; McRaith Testimony 2012, supra note 185.
177. Global Assoc, of Risk Professionals, Risk News & Resources, Debate Over Fed, State, International Rules Intensifies, (Apr. 1, 2013), http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid= 61078 [hereinafter GARP].
178. Laura Mazzuca Toops, Optional Federal Charter Won't Happen, Illinois Top Regulator Predicts, PROPERTYCASUALTY360. COM (Oct. 23, 2009), http://www.propertycasualty360.com/2009/10/23/optional-federal-charter-wont- happen-ill-top-regulator-predicts-.
179. National Association of Registered Agents and Brokers Reform Act of 2011, H. R. 1112, 112th Cong, 1st Sess. (Mar. 16, 2011), available at http://www.govtrack.us/congress/bills/! 12/hrl 112/text;
180. National Association of Registered Agents and Brokers Reform Act of 2013, H. R. 1155, 113th Cong, 1st Sess., (Mar. 12, 2013), available at http://http://www.govtrack.us/congress/bills/113/hr1064/text.
181. National Association of Registered Agents and Brokers Reform Act of 2012, S. 2342, 112th Cong, 2nd Sess., (Apr. 24., 2012), available at http://www.govtrack.us/congress/bills/112/s2342/text;
182. National Association of Registered Agents and Brokers Reform Act of 2013, S. 534, 113th Cong, 1st Sess., (Mar. 12, 2013), available at http://www.govtrack.us/congress/bills/l 13/s534/text. In the 112th Congress, the House passed the 2011 version but the Senate failed to pass its version and so the bill died, which is why the bills had to be re-introduced in the 113th Congress. Hall, supra note 37.
183. Press Release: NAIC Testifies Before Congress in Support of Streamlined Producer Licensing Legislation, NAT'L ASSOC. INS. COM. & CTR. FOR INS. POLICY AND RESEARCH (Mar. 19, 2013), http://www.naic.org/Releases/2013-docs/ naic-testifies-before-congress-m-support-streamlined-produ cer-licensing.htm.
184. FAC! Members, U. S. Dept. OF THE TREASURY, http://www.treasury.gov/about/ organizational-structure/offices/pages/faci-members.aspx (last visited May 17, 2013).
185. Scott Harrington, Response to Request for Public Input on the Report to Congress on How to Modernize and Improve the System of Insurance Regulation in the United States (Dec. 19, 2011) [hereinafter Harrington Response]; Sean McGovern, Response to Request for Public Input on the Report to Congress on How to Modernize and Improve the System of Insurance Regulation in the United States (Dec. 16, 2011).
186. Charles E. Boyle, Lloyd's New Director of North America, McGovern, Navigates Turbulent Waters, INS. J. (Nov. 14, 2010), http://www.insurancejoumal. com/magazines/features/2010/11/14/160489.htm.
187. Scott E. Harrington, The Financial Crisis, Systemic Risk, and the Future of Insurance Regulation, 76 J. RISK & INS. 785 (2009);
188. Scott E. Harrington, Insurance Regulation and the Dodd-Frank Act (Networks Fin. Inst., Working Paper, 2011), available at http://papers.ssm.com/ sol3/papers.cfm?abstract-id= 1783904.
189. Paul Mattera, Response to Request for Public Input on the Report to Congress on How to Modernize and Improve the System of Insurance Regulation in the United States (Dec. 16, 2011).
190. Maik E. Ruquet, Will More Regulation Solve Every Problem?, PROPERTYCASAULTY360. COM (May 17, 2010), http://rn. propertycasualty360.com/ 2010/05/17/will-more-regulation.
191. Bill Keneally, Regulatory Issues Impel Advance on the Hill, INS. NETWORKING NEWS (Jan. 1, 2009), http://www.insurancenetworking.com/issues/2008- 57/insurance-financial-services-meltdown-legislati on-regulationsl1653-1.html? pg=2.
192. Stanford Group Company, Insurance Regulation Reform: The Optional Federal Charter, WASHINGTON Financial Services BULLETIN (June 27, 2007), http://www.bipac.net/afc/FINS0627-o fc.pdf.
193. Consumer Advocates Wary of Federal Insurance Regulation Plans, INS. J. Apr. 16, 2009, http://www.insurancejoumal.com/news/national/2009/04/16/99590. htm.
194. Fed. Advisory Board on Ins., Meeting Minutes (Mar. 30, 2012) at 2-3, http://www.treasury.gov/about/organizational-stnicture/oiTices/Pages/ Federal-Insurance.aspx (follow link for "Committees/Board/ Commissions", click on pdf for Mar. 30, 2012 Minutes);
195. Fed. Advisory Board on Ins., Meeting Minutes (Aug. 6, 2012) at 4-6, http://www.treasury.gov/about/organizational-structure/offices/Pages/ Federal-Insurance.aspx (follow link for "Committees/Board/ Commissions", click on pdf for Aug. 6, 2012 Minutes) [hereinafter FACI Aug. 2012 Meeting];
196. FACI Nov. 2012 Meeting, supra note 195, at 7-12.
197. FACI Aug. 2012 Meeting, supra note 234, at 6.
198. FACI Nov. 2012 Meeting, supra note 196, at 8.
199. Office of Management and Budget, Fiscal Year 2014 Analytical Perspectives Budget of the U. S. Government (U. S. Govt. Printing Office: 2013), available at http://www.whitehouse.gov/sites/default/files/omb/budget/iy2014/assets/spec. pdf.
200. Public Input on the Report to Congress on How to Modernize and Improve the System of Insurance Regulation in the United States, 76 Fed. Reg. 64174 (Oct. 17, 2011).
201. Phil Mattingly, Volume of Volcker Rule Comments Was No Surprise, Regulators Say, BLOOMBERG BUSINESSWEEK (Mar. 13, 2012), http://www.businessweek. com/news/2012-03-13/volume-of-volcker-rule-comments-was-no-surprise-regulators- say.
202. The comments may be accessed via the Federal Insurance Office's webpage on the U. S. Department of the Treasury's site. U. S. Department of the Treasury, Federal Insurance Office, About, Organizational Structure, Resources, http://www.treasury.gov/about/organizational-structure/offices/Pages/ Federal-Insurance.aspx (follow "Electronic Comments" link).
203. See Lobbying: Top Industries (2012), CENTER RESPONSIVE POL. (2012), http://www.opensecrets.org/lobby/top. php?indexType=i (last visited Mar. 18, 2013).
204. Lobbying: Finance, Insurance & Real Estate Statistics (1998-2012), CENTER RESPONSIVE POL, (data chart from 1998-2012 on file with author), available at http://www.opensecrets.org/lobby/index.php (online database used to access years data from years 1998-2012).
205. OVERSIGHT PLAN, supra note 204, at 16.
206. Something similar happened to the SEC in the 1990s. At that time, industry groups persuaded Congress to restrict the SEC's budget, which hampered the agency's ability to enforce the securities laws and discouraged it from implementing more stringent investor protections. Elizabeth F. Brown, E Pluribus Unum-Out of Many, One: Why the United States Needs a Single Financial Services Agency, 14 U. MIAMI BUS. L. R. 1, 51 (2005).