Mutual holding company legislation is one of the issues of the moment. David Reddick provides NAMIC's perspective.

Benjamin Franklin accomplished many “firsts” in his life, not the least of which was helping to draft the Declaration of Independence. He also organized the first mutual fire insurance company in the United States.

Perhaps it is apropos, then, that the US Congress, the legislative body that had its genesis with the Declaration of Independence, should now decide the fate of an amendment allowing a mutual insurance company to transfer its domicile from one state to another in order to establish a mutual holding company.House Commerce Committee chairman, Thomas Bliley, R-VA. introduced such an amendment on 1 July during floor debate on H.R. 10, the Financial Services Act of 1999. The House adopted the amendment 226-203, and the entire bill passed by a margin of 343-86. House and Senate conferees began work on 3 August to reconcile differences between the House and Senate (S.900) versions of financial modernization. They are not expected to finish their deliberations until this fall.Despite some substantive differences in the two bills, most Washington insiders are predicting that Congress will resolve any disagreements before the end of the year, and will enact the first major financial services reform legislation since the Great Depression.

Whether the Bliley amendment survives the conference report (no comparable amendment exists in the Senate bill) is still anyone's guess, but if it does, Pamela J. Allen, vice president of Federal Affairs for the National Association of Mutual Insurance Companies (NAMIC), says much of the credit will belong to member company representatives from Virginia.

“Virginia does not have a mutual holding company law, and some of our members there thought they should have the ability to take advantage of this structure, so they came to Washington and spoke with Rep. Bliley's aides,” Ms Allen explains. “When a larger delegation of Virginia companies visited Washington in May as part of our Congressional Contact Program, they also expressed to their Congressional delegation an interest in seeing the amendment go forward.”Ms Allen also says that having Rep. Bliley introduce the amendment was a difficult decision for NAMIC, the national property/casualty trade association with the largest membership, and the only association dedicated exclusively to protecting the interests of mutual insurance companies.“Over the years, NAMIC has been one of the staunchest supporters of state regulation of insurance,” Ms Allen explains. “So, it was an extremely agonizing decision for our board members to authorize the staff to seek the amendment.”

Ms Allen says the determining factor was the realization by the NAMIC board that the amendment might be the best vehicle to help ensure a “level playing field” for its nearly 1,300 member companies.

“If you consider that only 22 states and the District of Columbia have enacted mutual holding company legislation and the prospects for other enactments appear slim (see box story on state activities), you quickly come to the conclusion that if all of our members are to have an opportunity to take advantage of the additional business ventures this legislation will permit, then the Bliley amendment was the best option for us to pursue,” Ms Allen remarks.Inclusion of the Bliley amendment in H.R. 10 has not gone unnoticed by the other national organizations with an interest in preserving the autonomy of state insurance regulation.

The National Conference of State Legislatures (NCSL), for one, adopted an “action calendar resolution” at its annual meeting in July that calls upon its Congressional Conference Committee “to remove the provision of the House legislation H.R. 10 which would preempt certain state laws with regard to the demutualization and redomestication of mutual insurers.” It concludes by instructing the Committee to forward copies of the resolution to President Clinton and all the members of the 106th Congress.

The National Conference of Insurance Legislators (NCOIL) and the National Association of Insurance Commissioners (NAIC), also have publicly stated their opposition to the Bliley amendment, and are expected to actively lobby against its passage.

Ms Allen says that while NAMIC respects the positions taken by the other organizations, she believes the Bliley amendment is really not about preempting states' rights.

“The amendment is intended to prevent regulators in an insurer's state of domicile from blocking a transfer to another state, or taking some type of punitive actions against an insurer pursuing that option,” Ms Allen explains. “If an insurer redomesticates to establish a mutual holding company, the regulators in the transferee domicile must approve the reorganization plan which includes all of the provisions contained in mutual holding company legislation that has been enacted around the country. State regulators still retain the oversight of any of these transactions.”

Ms Allen says a recent NAMIC analysis of the US insurance industry shows that of the 1,420 mutual insurers that were identified from statistics compiled by A.M. Best, the NAIC and NAMIC, 1,289 of them are property/casualty mutual insurers.

“If you eliminate from that number, those mutual insurers domiciled in the states where mutual holding company laws already exist, you are talking about an amendment that affects about 131 property/casualty companies nationwide,” says Ms Allen.

She emphasizes that the number also assumes that property/casualty insurers with direct written premiums of $5 million or less are not likely to be candidates for a mutual holding company structure and were eliminated from the calculation.

Besides the Bliley amendment, Ms Allen says NAMIC is supportive of H.R. 10 because it provides functional state insurance regulation a fair dispute resolution process and prohibits banks from doing insurance underwriting in the bank.

“H.R. 10 is historic legislation that is long overdue,” Ms Allen comments. “NAMIC member companies look forward to supporting provisions of the House bill and seeing them become law.”

Whether Ms Allen and NAMIC ultimately are successful in persuading Congress to enact a financial services reform bill, they may at least be able to take some solace from a dictum attributed to Ben Franklin, and published in his Poor Richard's Almanack: “Drive thy business, or it will drive thee.”

David Reddick is the government affairs advocate for the National Association of Mutual Insurance Companies (NAMIC). He is a former chief deputy commissioner with the Indiana Department of Insurance. He holds a Ph.D in American Studies from Michigan State University.