trade matters and federal data analysis. the naicu maintains the world's largest database while the states to and will provide data to the federal regulatory counterparts, we agree that insurance data should be available within the four walls of the federal government. consolidated oversight of holding companies will be enhanced by counsel of regulators that build on the existing data and expertise of functional regulators. state insurance regulation is of course inherently compatible with the systemic stability council. annie financial stability regulator should develop best practices for risk-management, required for u.s. insurers but glaringly lacking in other sectors. information sharing and confidentiality protocols can be established in coordination among regulators formalize. under no circumstance though

should a buyable insurance subsidiary be sacrificed for the benefit of another entity within a corporate family. internationally, the development of accounting standards of the international accounting standards board's weeds the u.s. and others within the next several years to adopt accounting standards based on international financial reporting standards. we of undertaken a solvency modernization initiative that will evaluate lessons learned nationally and internationally and examine areas appropriate for refinement. we work internationally with the g-20, the joined forum, the financial stability form, the international association of insurance supervisors and the oecd and others. ..

>> and analyzing and coordinating action involving major insurers for internationally with supervisors and other countries we monitor berkshire combat aig, ing, ambience among others. insurance is not a service of systemic risk and i one ensure it imposes systemic risk. they may be challenged by failure in other sectors as

with aig but the utmost fiber markets in the world being the demise of any one insurer will not alter the country's financial stability picasso contrary to misleading alarms the state guaranty fund system has the wherewithal to ensure failures even multiple concurrent failures are protecting consumers. we support systemic regulation and pledge or good-faith interaction and renewed our commitment to engage constructively with this committee. thank you for your attention. look forward to your questions and replying to comments made by mr. skinner and others. >> thank you very much mr. michael mcraith. next we will hear from teresa bryce president of radian guarantee mortgage. >> thank you, mr. chairman. members of the subcommittee i

a appreciate the opportunity to testify on behalf of the trade group representing their private mortgage insurance industry. mortgage insurance allows borrowers responsibly buy hold less than a 20 percent down payment. many of these are first time and lower income far worse. since 1957 mortgage insurance has held over 25 million families purchase homes. today about 10% of all outstanding mortgages have private mortgage insurance. this morning, like to make three points. first, we do not cause or contribute to systemic risk. to the contrary, we absorber ask. if a borrower defaults, a mortgage insurance pays the lender or investor, between 20 and 45% of the loan amount

plus expenses. the insurance payment plus the proceeds from the sale of the house makes that much of the lenders or investors lost. in the current crisis since 2007, we have paid over $15 billion in losses just like we are supposed to do. i would also know that because mortgage insurance companies have their own capital at risk, we have very clear incentives to mitigate our losses by taking action to avoid foreclosures if at all possible. last year mortgage insurers were able to save almost 100,000 people from losing their homes. my second point* is that the industry has adequate capital to continue paying claims on existing loans into the future because our state regulators require us too have sufficient capital reserves. the backbone of the industry's financial strength is the

state impose reserve requirements and specifically the contingency reserve. half of each premium dollar earned goes into the contents insurance the reserve and generally cannot we touched by the mortgage insurer for 10 years. this ensures that a significant reserves are accumulated during good times so that they are able to be there to handle claims in bad times. ministry of the mortgage insurance industry illustrates the value of the reserve structure. mortgage insurers paid out millions of claims as a result of regional recessions in the '80s and '90s. after each recession, we build up capital and were able to meet the next stress period. mortgage insurers and the banks that make the loans face similar mortgage default risk but only mortgage insurers raise capital in this countercyclical manner. in fact, only now are federal banking regulators working to

construct a similar system for banks. my third and final point* is with additional capital we can significantly help the housing recovery by responsibly expanding the number of new home buyers. as the subcommittee knows, the members of mike have requested capital assistance from treasury. we do not need help to meet our obligations four projective claims and said we're asking for assistance in order to increase the number of loans rear able to ensure while maintaining strong capital reserves. every billion dollars of capital out mortgage insurance translates into 100 building of new funding more than 650,000 new mortgage loans for a quick $10 billion program will increase market capacity by enabling 6.5 million loans to be injured. a government investment would

dramatically benefit the housing market and enable more borrowers to realize the dream of home ownership on terms they can afford and sustained. so the bottom line is with additional capital the mortgage insurance companies can ensure more loans. we hope it is forthcoming. in conclusion i want to think for the opportunity to testify today. the private mortgage insurance industry continues to absorber ask just like it is designed to do. mica strongly supports the regulatory system and believes the structure ensures we can continue to meet our obligations during these challenging times. it would also like to contribute more to the housing recovery and could do so the day after we receive och additional capital from that recovery program that is ready to go. thank you. >> next to hear from sean

mccarthy chief operating officer of financial security assurance. >> members of the subcommittee my name is a sean mccarthy and today i am testifying in my role as president of financial security assurance holdings or ssa a short guaranty corporation that is expected to complete the acquisition of ssa on july 1st. we appreciate the opportunity to testified to improve oversight of the insurance industry and other restructuring of the federal government's role with regards to insurance products. we provide in the case of ssa private insurance and global infrastructure markets and in the case of the assured bond insurance for the u.s. municipal global infrastructure and construction financing. insurance is utilize only in

the financial markets is a very different product from that of property casualty, life and health insurance companies. article 69 was enacted by new york state to segregate financial guaranty insurance from zero tie line products and the risks those in jail. while it was a good step, it is not strong enough. we believe we will require mandatory federal regulation that is closer to that of the bank's and that being a centralized and encompassing all aspects of regulation including required capital. the current decentralize regulatory regime from moneyline alliance is aimed at preserving solvency rather than their financial stability. there is no uniform consistent credit, capital and financial strength standards. recognizing this, the new york insurance commissioner who recently announced he was

leaving has realized the potential need for a bond insurance regulation in the model line industry. and partly due to lack they have become the factor regulators while we can continue to strive to achieve the highest possible ratings we believe the rating agency viewers play a single role in their strength. ratings are based on our criteria that include many subjective characteristics and rating agency methodologies are not readily transparent. additionally all three rating agencies have different sets of guidelines which present conflicting goals and make it impossible to manage a stable company. investors cannot easily be by way rating agency conclusions due to the impact on trading by u.s. securities by news that monoline have ensured and

investors are forced to accept a financial guarantors' the end result of the fact regulation has been to destabilize markets and reduce issuers' cost effective access to capital markets. this has been most difficult for small municipal issuers of a complex bonds. for bond insurance homogenizes the credits providing market liquidity and market access. the penetration of the bond industry for the first five months of 2009 is 13%, the credit has declined at about 6%. certainly there has been no question that federal guarantors to a concentrated risk that severely underperformed which caused downgrades or fell years of five of the seven primary guarantors.

notably many of the problem -- problematic transactions were rated aaa by the rating agencies at the time of issuance. the financial guaranty industry is now in a rebuilding stage and a number of potential new entrants will participate in the market. assured and ssa has come through this unprecedented time of turmoil with strong capital positions despite understandable concerns the market has expressed about the financial guaranty model, we are confident that investors will continue to see value and guarantors that combine capital strength with diligent and experienced credit selection skills. and conclusion we like to see mandatory federal oversight of our industry that would provide regulation by design, not by default. we believe that licensing requirements should be

stringent and require high by predictable capital levels. guarantors should provide detailed disclosure of risks to all constituencies and should be subject to an annual stress test that would be applied equally to all companies. this would increase investor confidence and provide much needed transparency and stability to the capital markets. thank you. i look forward to your questions. >> thank you very much mr. mccarthy. next we have mr. ken spence. >> ranking members thank-you for the opportunity to testify my name is ken spence and ibm at executive council of travelers that offers all large property of risk management services to

numerous with businesses organizations are individuals in the u.s. and abroad. our products are distributor primarily through the u.s. through independent insurance agents and brokers and a company that is a member of the american insurance association. there appears to be an emerging consensus there should be systemic risk regulation of the federal level. i will share some of travelers specific systemic risk regulation recommendations of a moment. however for any systemic level oversight to me meaningful across financial service sectors, there must be an insurance regulatory presence at the federal level to ensure that appropriate information is provided and analyzed and to ensure that any systemic level directives are effectively implemented. to that end of the creation of an office of the insurance information as the chairman has proposed would bolster the faltering reduce federal presence in the understanding of the insurance sector.

the zero i brings information to the marketplace as a national systemic regular 11 give the united states a single voice with which to speak on international insurance policy and trade matters. we believe a comprehensive approach to federal financial services modernization would not be complete a must also includes a broader federal insurance presence that encompasses federal chartering for insurers. this would ensure robust and consistent regulatory oversight, strong consumer protections and helping competitive industry. we have been carefully considering the notion of systemic risk regulation as an initial matter we're mindful the determination it is systemically imports and does not necessarily depend upon the size or industry brother to the extent of which the financial condition is potentially so and try related with other institution that the failure could cause

widespread and substantial economic harm extended beyond the stake holders who would assume the risk. for example,, any unregulated holding company with a strong credit rating from the underlying operation could underwritten credit default swaps which played the at an important role in the current financial crisis. in addition rethink it is relevant to consider these systemic risk that may be presented on the aggregate industry wide basis. for example, even if a particular community bank or insurance company would not present systemic risk the widespread failure of committee banks are insurance companies could. a natural or man-made catastrophic event or series of events could cause more than the isolated failure of casualty insurance property companies which could be significant part of their two elements in particular that we recommend for your proposal.

mandated internal enterprise risk through board level risk committees and substantially enhance disclosure requirements related to arrest. i must emphasize that our two recommendations are not intended to be a comprehensive solution but instead we believe any solution should include the two essential elements. first, corporate governance reform should require systemically important companies to a sign responsibility for risk oversight to a committee of their board of directors with the management risk officer the reports directly to the board committee on a regular basis but a travelers has had a board risk committee headed is akin to the relationship with the company's chief internal auditor reports directly to the committee. their risk committee would be responsible for overseeing the company's risk related controls and procedures and achieve risk officer who is responsible for implementing and managing those controls and procedures.

protocol recognizes the importance of risk management and provides clear responsibility and accountability for the management of risk for the second thomas systemically imports and financial institutions should be subject to robust disclosure regime in order to provide regulators, rating agencies and the public with the animation necessary to provide a comprehensive understanding of the overall risk profile and be able to identify those institutions that could pose a systemic risk to the economy. market forces would in turn helped limit a company's incentive to take risks that could potentially undermine its own long-term success and as a result the larger economy. a more robust disclosure regime should be principal based and flexible but include additional quantitative disclosure of risks and other factors including mandated stress testing that could

cause a systematically important company could to fail. thing for the opportunity to testify and respond to any questions you may have. >> next we have mr. franklin nutter president of reinsurance association of america. >> mr. chairman members of the committee thank you very much. i am franklin nutter president of the reinsurance american -- association of america. reinsurance is a risk management tool for companies to improve capacity and performance to enhance financial security and reduce volatility. reinsurance is the most efficient tool available to ensure is. reinsurance is a global business and encouraging the participation of reinsurers worldwide is essential because it provides that much-needed capacity in the u.s. are property-casualty and life risks. including the u.s. subsidiaries foreign owned reinsurance companies

accounted for nearly 84 percent of property-casualty premium seated on u.s. risks by u.s. insurers. because of their reinsurance transactions between sophisticated business parties the regulation of reinsurance focuses almost exclusively on provincial regulation and on the solvency with no consumer component the coz reinsurance is a business to business transaction there is no reinsurance guaranty funds of the state level and no need to create one of the federal level. as this committee is aware there is no federal entity with stature to a lot of 30 your responsibility for oversight of insurance and consequently when the insurance issue arrives there is no information at the federal level to properly advise policy-makers ready minimum there is a federal entity that can use information and data from state regulators but it is empowered to conduct its own analysis and provide a broader

perspective than individual state interests but we believe the chairman's office insurance affirmation legislation is good and timely and addresses the problem. reinsurance is part of the transfer of mechanism for modern financial and insurance markets. their clear distinctions between risk finance and products that are relatively new and risk transfer products like reinsurance whose is a regulated or by nine u.s. regulatory domicile and business model has existed for centuries but in the case of reinsurance regulatory reform is necessary to improve regulatory and market efficiency and capacity in the west that should focus on licensing regulation and international cooperation in. it has been suggested the authority of a systemic risk regulators should encompass traditional roles and standards for capital liquidity, risk management, a collection of financial reports, examination of

authority and to take regulatory action if necessary. we're concerned that the systemic risk regulator envisioned by some with no clear delineated lines of authority and strong preventive powers would be redundant with the existing state based regulatory system. we also know that without reinsurance regulatory reform and a provincial federal reinsurance regulator a federal systemic regulator would be an additional layer of regulation without added value and no great issues and be a conflict with the multistate system of regulation. foreign government officials not unlike mr. skinner have continued to raise issues with having at least 50 different u.s. regulators which makes coordination and international insurance issues difficult for regulators and company is part of the time has arrived that the single voices adversely impacting u.s. reinsurance. the interaction between u.s. and foreign counterparts on issues like european union

solvency and not only impact the ability of u.s. companies to conduct business but also the flow of business to the united states by the possibility the entire 50 state system will be deemed equivalent appears questionable at best. that is with a federal acknowledgment that task for international policy issues the u.s. reinsurance industry will continue to be disadvantaged in these discussions. the multi state regulatory system is the anomaly in the regulatory world. the u.s. is disadvantaged by lack of a federal entity with constitutional authority to make decisions for the country and negotiate international insurance agreements. we were encouraged by supervisory recognition among countries in the national insurance act of 2008 introduced in the last congress. supervisory recognitions seeks to establish a system where country recognizes the system of other countries and allows

a reinsurers to the end of business based on the regulatory requirements of her own jurisdictions. a single national reagan letter with statutory authority could negotiate an agreement with regulatory systems a foreign jurisdiction second achieve the level of regulatory standards with their counterparts in the west. financial markets are global and interconnected and no sector is more global than reinsurance. even the naic has acknowledged that quote the time is right to consider a framework for reinsurance and u.s. is warranted. as congress proceeds with financial services modernization reemphasize only the federal government has the constitutional authority, agencies and experience in matters of foreign trade easily modernize reinsurance regulation. multistate rated three agencies and international trader in the fishing, a post barriers and do not result in greater transparency.

the art eight recommends in the reinsurance included in any meaningful reform with a federal regulator and have exclusive regulatory authorities over reinsurance that has a federal charter and there is no redundancy with state regulation. we further recommend any finance reform incorporate authority to recognition of enforcement with foreign insurance regulators. thank you very much. >> thank you very much now we will hear from mr. patrick bared chief executive officer on behalf of the american council of life insurers. >> raking member garrett and other members of the subcommittee of a2 present the views of the life-insurance business on systemic risk and its implications for financial regulatory reform. i live and work in cedar

rapids s.p.a. of flight to lead off with the premise that the life insurance industry is important and from that apolo's would ever regulatory a day's return reform package must include the life-insurance industry that the new regulatory structure operates as effectively as possible and minimize the likelihood of a similar crisis occurring again. here are some highlights of the importance of the life insurance business. life-insurance products provide financial protection for some 70% of u.s. households or 75 million families. overt trillions of dollars that the companies polled 2. $6 trillion in annuity reserves. annually repay almost 60 billion of life insurance benefits over $70 billion of annuity benefits and more than $7 billion of long-term care benefits. we're the backbone of the employee benefit system more

than 60 percent of all workers have employer sponsored life insurance and companies sold over 22% of all private employer retirement assets life insurers of the single largest source of corporate bond financial and all the proxy 18% of corporate bonds. our also now without financial protection provided by a the companies and families may need to rely on federal government for assistance. that said we don't believe any individual life insurance company poses systemic risk. the question becomes how to deal with the industry that as a whole that is systemic the important but which doesn't have any individual companies that goes systemic risk? first reassume life insurers will be covered in whatever broad systemic risk oversight is by applicable to the banking and securities industries. beyond that we believe it is imperative that congress create a federal functional

insurance regulator and make it available to all life companies within the industry with the optional basis. the justification for creation of such a regulator prior to the crisis and even more the case today is even stronger after the crisis. of sent a federal function regulator there's a real question dilute on how national regulatory policy will we implemented through insurance. whatever legislation that congress and axel reflector decisions on a comprehensive approach to regulation your policy needs to regulate all significant sectors of the financial services industry and apply to all sectors on uniform basis and without any gaps that could lead to systemic problems. is also worth noting critical decisions are made in washington affecting business today but being made without any significant employ or involvement on the part of the