It also set in motion an intense effort by the industry to shape the regulations and government bodies that will implement the legislation to their liking. In addition, with the historic Republican takeover of the House in the aftermath of the bill's enactment, lawmakers may work to slow down implementation of the bill.

Earlier this month, Rep. Spencer Bachus, R-Ala., incoming chairman of the House Financial Services Committee, said Republicans "are committed to going title by title through the 2,300-page Dodd-Frank Act to correct, replace, or repeal the job-killing provisions that unnecessarily punish small businesses and community banks that did nothing to cause the financial crisis."

Still, Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, said the Council expects a bipartisan sentiment on insurance regulatory matters "to continue to prevail" under Chairman Bachus.

"The insurance provisions of the legislation, including the creation of a Federal Insurance Office at the Treasury, were negotiated in a bipartisan way," he observed.

Industry Impact

The most significant immediate regulatory change imposed on insurers by the legislation was the inclusion of the Nonadmitted and Reinsurance Reform Act, which mandates that states significantly simplify and centralize regulation of the surplus lines industry. (See related sidebar, "Surplus Lines Reform Is Key Industry Victory In Financial Services Reform," next page.)

Mr. Wood said he was particularly grateful that these provisions were included, noting that the industry has worked for six or more years to obtain passage of surplus lines reform.

"While we're disappointed that state insurance regulators are not seizing the opportunity under this act to create a uniform interstate compact to govern surplus lines placements, the fact is that this marketplace will be improved when the provisions go into effect in July 2011," he said.

Leigh Ann Pusey, president and CEO of the American Insurance Association, said, "With the enactment of the Dodd-Frank financial reform bill and the committee's likely focus on the implementation and oversight of these sweeping reforms, we will continue to reinforce the distinctions between insurance and other financial services."

She added, "As was the case during the legislative process, our focus will remain on identifying how the nature of insurance is different than that of the banking sector and emphasizing those unique differences with the appropriate rule making authorities."

Steve Broadie, vice president-financial policy, for the Property Casualty Insurers Association of America, said that, for the most part, insurers were spared many of the most onerous regulations in the Dodd-Frank Act, which reformed regulation of financial services.

In recent comments to the Casualty Actuarial Society at the group's annual meeting in November, Mr. Broadie said that insurers were unlikely to be subjected to systemic risk regulations or liquidation provisions contained in the law. "Our sense is that the impact of the Dodd-Frank Act on most insurers will be limited," he said.

However, given the establishment of the Federal Insurance Office, "we are sailing into uncharted waters" in terms of insurance regulation, Mr. Broadie noted.

Functions of the FIO include:

o Data collection and analysis

o Systemic risk monitoring

o Advising on the Terrorism Risk and Insurance Act

o Monitoring the affordability and availability of insurance in under-served areas

o Recommending insurers for systemic risk supervision

o Advising on insurance policy issues and coordinating the development of federal policy on international prudential insurance issues

Mary Seidel, vice president and director- federal affairs, Reinsurance Association of America, said that throughout the debate on financial services reform, reinsurers made their case that the reinsurance industry needed a federal presence. "We saw this as an opportunity to improve the way reinsurers are regulated," she said.

"The FIO has very limited authority to enter into international agreements and pre-empt state law," Ms. Seidel said. However, "the fact that there are international provisions is a positive," she added.

David Snyder, vice president and associate general counsel, American Insurance Association, cited the mandated study of insurance regulation by the FIO as "a tremendous opportunity to talk about what's right and what's wrong with the current U.S. regulatory system."

For example, he cited the "politicization" of rate regulation in some states which makes it difficult, if not impossible, for insurers to match the rate regulators approve with the risk insurers assume, such as in coastal areas.

E&S Industry Nets Key Victory

While it may be years before full impact of the Dodd-Frank financial services reform bill becomes known, some clear upfront victors appear to be participants of the nonadmitted insurance, or excess and surplus lines, segment.

Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices, Ltd., was one of the first industry executives to characterize members of the surplus lines industry as the "big winners" in reacting to passage of the legislation in July.

He added a message of caution, however, noting that for the full benefits of the law to be realized, "the states must implement the surplus lines reforms in the way Congress has directed"–a message that is ringing true as 2010 ends.

That is because the National Association of Insurance Commissioners, so far, is supporting an interstate agreement that attempts to fulfill only part of the promise of the 10 pages of E&S reforms tucked into 2,000-plus pages of the Dodd-Frank Wall Street Reform and Consumer Act.

The law establishes that only one state–the home state of the insured–can regulate a multistate surplus lines transaction. It also creates national eligibility standards for surplus lines insurers and streamlines access to the E&S market for large commercial insurance buyers.

In addition, there is a provision of the law also says that "Congress intends for each state to adopt nationwide uniform requirements, forms, and procedures, such as an interstate compact, that provide for the reporting, collection and allocation of premium taxes for nonadmitted insurance."

Regulators on the NAIC's Surplus Lines Implementation Task Force decided in late October that their proposal for implementing E&S reforms will be a minimal plan addressing the collection and allocation of surplus lines premium taxes but not uniformity of regulation between the states.

Louisiana Insurance Commissioner James J. Donelon, chair of the NAIC's Surplus Lines Implementation Task Force, said the "bare bones" approach of the NAIC's model–the Nonadmitted Insurance Multi-State Agreement, or NIMA–does not address insurer eligibility and licensing between states.

Separately, three groups representing state governors and legislators–the National Conference of Insurance Legislators, the Council of State Governments, and the National Conference of State Legislatures–have adopted resolutions in November and December supporting an alternative approach, known as SLIMPACT, or Surplus Lines Insurance Multi-State Compliance compact.

The concern that dueling proposed compacts creates as the year ends is the potential for the "worst of all possible worlds," which would be that some states adopt SLIMPACT and other states adopt NIMA.

If that is what happens, NAIC and state insurance legislators agree that Congress is likely to step in, according to reports from the November NCOIL annual meeting held in Austin.

States are required to act to implement the E&S provisions of the federal law–formerly known as the Nonadmitted and Reinsurance Reform Act–by July 2011.

"Over the next year, all states will have two major issues in front of them in connection with the NRRA," according to Mr. Bouhan. "First, states must bring their laws into compliance with the new federal law and, second, the NRRA encourages states to agree on a tax compact to handle allocation of taxes."

"SLIMPACT will solve the second issue in a manner that allows the brokers to retain the efficiencies in premium tax remittance that Congress created in passing the NRRA," Mr. Bouhan said, expressing the view of six industry trade groups which favor the NCOIL model.