Silver And Morelle Announce Hearing To Examine the State Insurance Department's Regulatory Role In Light Of Bond Insurance Crisis

Public Forum Seeks Deeper Understanding of Crisis and Better Understanding
of Proposals Being Advanced By Department

Assembly Speaker Sheldon Silver and Assembly Insurance Committee Chair Joseph Morelle today announced that the Assembly will conduct a public hearing next month on the role of New York state's insurance regulatory agency in light of the current bond insurance crisis.

Silver said, given the uncertainty in the bond insurance market and the potential consequences to the fiscal health of communities throughout the state, the hearing would invite testimony from the state Insurance Department commissioner, bond insurers and state, municipal and local governments on the current situation. The forum is scheduled to take place March 14 in New York City.

"The latest downgrade of municipal bond insurers' ratings should give New Yorkers pause," Silver (D-Manhattan) said. "State and local governments raise vital capital for important projects through bonds. Continued uncertainty in the bond market could make it even more costly for local governments to raise money for essential programs from education to transportation and construction."

The lawmakers said a public discussion was important in light of the State Insurance Department's role in regulating the industry. Most importantly, the Department bears responsibility for ensuring that insurers maintain an adequate level of solvency so that they are able to honor policyholder claims. Morelle noted that the state Insurance Department has advanced a series of proposals that needed to be examined.

"It is critical to so many aspects of our economy that this market remains strong and reliable and does not contribute to an already strained economic environment. Continued losses in the bond insurance market could have a ripple effect throughout the financial services industry, potentially adversely affecting the market value of municipal bonds; cause potential losses and liquidity pressures on banks and securities firms; and, possibly cause further erosion of investor confidence in financial markets generally," said Morelle (D-Irondequoit).

Silver noted that in recent months, several market research firms have downgraded various bond insurers' ratings due to their recent profit losses, tied to billions of dollars in failed sub prime mortgages. Concerns have been raised about the industry's ability to insure interest and principal on public bonds. As a result, state and municipal governments must now pay additional interest on bonds.