OAMIC Federal and Political Update

October 24, 2013

Jimi Grande SVP Federal and Political Affairs jgrande@namic.org

Presentation Outline

• About NAMIC

• Washington Outlook

• Key Federal Issues

• 2014 Elections

NAMIC

• Largest P/C trade association with 1,400 member companies • More than 135,000,000 policyholders served • More than $196 billion in annual premiums • 50% of the U.S. auto/homeowners market • 30% of the U.S. commercial market • More than 200,000 people employed by NAMIC members

NAMIC Advocacy Staff

• 8 State Legislative Lobbyists • 5 Federal Lobbyists • 7 Public Policy Experts • 5 Communications/Political Affairs professionals

25 full-time Advocates

Washington Outlook

Second Term

• Gun Control

• Immigration Reform

• Climate Change

• Tax / Debt Ceiling / Deficit

President’s Ambitious New Priorities:

Presidents tend to run into trouble during their second terms

Analysis •The novelty is wearing off, energy is waning, administration is running out of fresh ideas, and the A-team from the first term has largely

moved on •In the past, recessions, scandals, and wars have plagued second-term Presidents—this second term appears to be no exception

•In years 5 through 8, voters often become increasingly open to the idea of change

The President’s Second-Term Jinx

President Pitfall

G.W. Bush Iraq War

Clinton Lewinsky Scandal

Reagan Iran Contra Scandal

Nixon/Ford Watergate Scandal/Impeachment/Pardon

Kennedy/Johnson Vietnam War

Eisenhower Recessions in 1958 and 1960

Second-term pitfalls among presidents

Year President Party Pres. Party Seat Change: House Pres. Party Seat Change: Senate

2006 G.W. Bush Republican -30 -6

1998 Clinton Democrat +5 0

1986 Reagan Republican -5 -8

1974 Nixon/Ford Republican -48 -4

1966 Kennedy/Johnson Democrat -48 -4

1958 Eisenhower Republican -48 -12

Average -29 -6

Analysis The President’s party has been hammered in the House and/or Senate in five of the last six “six-year itch” elections since World War II

The president’s party fares poorly in second-term midterm elections

The Six-Year Itch

Change in congressional party makeup after midterm elections during president’s second term

The President’s Second-Term Jinx

Analysis The President’s party has lost five of the last six post-World War II presidential elections which have followed two-term presidencies

Since WWII, President’s Party Has Lost Five of Six Attempts for Third Term

* Lost electoral vote, won popular vote

Year President Party President’s Party Election Result

2008 G.W. Bush Republican Lost White House

2000 Clinton Democrat Lost White House*

1988 Reagan Republican Won White House

1976 Nixon/Ford Republican Lost White House

1968 Kennedy/Johnson Democrat Lost White House

1960 Eisenhower Republican Lost White House

President’s party election results after two-term presidency

The President’s Second-Term Jinx

What Dominated Early Second Term

James Rosen IRS Scandal

Benghazi Associated Press

NSA

Syria

The New Crisis: Showdowns, Shutdowns, Cliffs and Ceilings

• Showdown – Showboating or Irreconcilable differences • October 1 Shutdown – What really happened? • Fiscal Cliff – The country is on an unsustainable glide

path that has not been dealt with. Only postponed.

• New budget deal Jan 15.

• Debt Ceiling reached again by March.

• Default vs. Actual Shutdown

• Deal = Sequestration vs. Entitlements

• Impact on 2014

Executive Branch

• Declared gridlock unworkable • Goal became to marginalize and

ignore Congress • Ruling through Rules:

• FCC fees on cell phones • New rules for coal plants • Implementation of DFA • Implementation of ACA

Who’s Really in Charge?

• The 112th Congress passed 220 laws, slightly down from an average Congress who passes about 400.

• Federal Regulators have been passing/publishing nearly 4,000 rules each year

• More than 180,000 rules are on the books

• Around 81,000 pages have been added each year

Growing Regulatory Reach • Threat of Optional Federal Charter – You wish!

• Federal Reserve applies to join IAIS

• IAIS proposes global capital standards

• G-20 – FSB Peer Review

• FIO Report on Regulatory Modernization

• FSOC designates Prudential and AIG

• Rep. Ed Royce attacking NAIC

• FIO, FACI, CFPB, FSOC…. EPA, HUD

HUD Disparate Impact Rule

Department of Housing and Urban Development

HUD Disparate Impact Rule

• Proposed 11/15/12, Finalized 2/15/13, Effective Date 3/18/13

• Established standards determining when a housing practice with discriminatory effects violates the Fair Housing Act (FHA)

• Disparate Impact – legitimate practice may be considered discriminatory and illegal if they have a disproportionate "adverse impact" on members of a minority group

• Would apply to "the provision and pricing of homeowner’s insurance”

• Could threaten use of any underwriting factor

Magner v. Gallagher

• City of St. Paul vs. slum lords

• Case pending before SCOTUS

• Disparate Impact on table – favorable ruling likely

• Petitioners drop case two weeks prior to oral arguments beginning

DOJ / HUD Scandal • Congressional investigation launched in Sept. 2012

• Alleges top DOJ and HUD officials negotiated a quid pro quo with St. Paul in order to get it to withdraw Magner to protect the disparate impact

standard

• In exchange, the DOJ would decline to intervene in an unrelated False Claims Act suit against city

• The DOJ case could have returned $180 million to the federal government

Mount Holly, N.J. v. Mount Holly Gardens Citizens in Action

• A writ of certiorari was filed June 11, 2012 • Asked SCOTUS to rule that HUD had no

authority under FHA to apply a disparate impact rule

• Certiorari Granted on June 17, 2013 • Limited to the question of whether

Disparate Impact is permitted under the FHA • Positive ruling would effectively nullify

the HUD rule

• January 2012 comments

• Congressional oversight through hearings, letters and appropriations language

• NCOIL resolution asking HUD to “expressly disclaim from the purview of the proposed rule any impact on…homeowners insurance”

• Trades meeting with OIRA

• Leading trades legal team developing strategy

Industry Pursues all Avenues

NAMIC and AIA File Suit

• NAMIC and AIA filed a Complaint for Declaratory and Injunctive Relief on June 26, 2013

• Alleges that the Disparate-Impact Rule reaches beyond HUD’s statutory authority under the FHA

• Requests the court to declare that the Disparate-Impact Rule is unlawful

• HUD seeks a stay of our litigation, pending resolution of Mt Holly

• NAMIC, AIA, PCI and IIABA file joint Amicus in Mt. Holly September 3, 2013

• Supreme Court agrees to hear oral arguments on December 4, 2013

Key Legislative Issues

• Terrorism Insurance

• Build Strong Coalition

• NFIP – Rolling Back Reform

• PARTS ACT

Terrorism Risk Insurance Program

• Market post 9-11

• Lack of terrorism coverage impacted $15.5 bn. in commercial real estate transactions; cost 300,000 construction jobs

• TRIA passed in 2002 – reauthorized in 2005, 2007

• TRIA is for commercial P/C insurance; acts as reinsurance in event of certified terrorist event

• Private sector contributes up to $27.5 billion • 20% Deductible • 15% Co-Pay • $100 M event trigger • TRIA only costs the government a small sum unless there’s a terrorist attack

A Brief History of TRIA

Wide-Reaching Policyholder Base

• Businesses

• Ports

• Hospitals

• Museums

• Casinos

• Commercial Property Owners

• Multifamily Property Owners

• Public Utilities

• Stadiums

• Financial Institutions

• Municipalities

• Manufacturers

• Universities

• Many others…

Terrorism Risk Insurance Act of 2002 Reauthorization

Michael Grimm, R-N.Y. introduced H.R. 508 on Feb. 5

• 5-year reauthorization

Benny Thompson, D-Miss. – Ranking member of Homeland Security Committee, introduced H.R. 1945 on May 9

• 10-year reauthorization Michael Capuano, D-Mass. – Ranking member of the Insurance Subcommittee, introduced H.R. 2146 on May 23

• 10-year reauthorization

128 Cosponsors from 29 States + D.C.

TRIA Renewal in the 113th Congress • Current Terrorism Risk Insurance Program authorized through

December 31, 2014.

• Lapse in program would immediately cause technical default of commercial loans and the devaluing of over $1 trillion in commercial mortgage backed securities.

• Commercial insurance policies with terrorism coverage would also be null and void if the program expires.

• New commercial lending will be impacted if no signals of Congressional intent by at least 6 months prior to expiration.

• Two Congressional Hearings in September. Reauthorization is facing a stiff head wind.

Safe Building Code Incentive Act

Strong building codes are good for homeowners, good for businesses, and

good for taxpayers

Build Strong • Homes and businesses can and should

be built to resist the ravages of a variety of natural catastrophes

• LSU Hurricane Center estimated modern building codes would have spared 80% of Hurricane Katrina wind damage ($8 billion)

• 2005 NIBS study concluded for every $1 spent on pre-disaster mitigation, disaster relief assistance is reduced by $4

• Strong building codes are good for homeowners, good for businesses and good for taxpayers

Insurance Institute for Business and Home Safety (IBHS)

IBHS Research Center – Richburg, South Carolina

www.ibhs.org

NAMIC Leading Push for Safer Building • Formed and leading diverse

BuildStrong Coalition • Insurers, firefighters, emergency

managers, engineers, architects and building materials suppliers

• Developed support for and received introduction of signature priority, The Safe Building Code Incentive Act (SBCIA).

• Testified at two Congressional hearings as experts on safer building codes promoting the SBCIA

• 5o Cosponsors in 112th

• Big Show this Fall at Research Center

NFIP Reform Becomes Law

NAMIC Chair Sandy Parrillo testified on March 11, 2011

• Adequate Rates

• Updated Maps

• Take-up Rates

• Repetitive Loss

• Operational Inefficiencies

Reforms signed into law on June 30, 2012

The PARTS Act

Preserves competition in the aftermarket parts industry, which helps to keep costs down for policyholders and consumers

The Problem

• Under current law, a design patent lasts 14 years from the date it is first issued.

• Recently, auto manufacturers have begun to obtain

design patents on exterior collision parts and are using them to eliminate any aftermarket or third-party ability to sell these parts needed for car repairs.

• Left unchecked, the elimination of competition could affect your local collision repair shop and auto parts store -- and lead to higher insurance costs.

Promoting Automotive Repair,

Trade, and Sale Act

• H.R. 1663/S. 780 Introduced on April 23, 2013

• Creates 30 month window • Current patent law is 14 years

• Protects intellectual property

• Primary market protected

• Very narrow exception for exterior collision repair parts

Politics is not a Spectator Sport!

Insurers must be engaged in shaping the legislative and regulatory landscape

NAMIC PAC FUNDRAISING GROWTH BY ELECTION CYCLE

Contributions have grown by over 400% from 2005 to today.

Receipts in the two year 2014 election cycle are expected to exceed $900,000.

Current Senate Breakdown

50

Number of Senate seats in the 113th Congress, by party

Senate Elections: 2014 and Beyond

* Includes two Independents, Angus King (I-Maine) and Bernie Sanders (I-Vt.), who caucus with the Dems Source: The Cook Political Report.

55 45

GOP will once again be on offense and have playing field advantage

2014 Senate Races

55 Democrats – 45 Republicans

35 Senators facing reelection

20 Democrats – 15 Republicans

Only 11 Competitive Races – 9 D, 2R

GOP needs to gain 6 to take control

Democrats Have More Open Seats at Risk in 2014 than Republicans

Source: The Cook Political Report.

Open Senate seats by party

Harkin (IA) D+1 Levin (MI) D+4

Baucus (MT) R+7 Johnson (SD) R+10

Rockefeller (WV) R+13

Chambliss (GA) R+6 Johanns (NE) R+12

Senate Elections: 2014 and Beyond

2014 Senate Races*

GOP Favored – McConnell (R-KY) and GA Open (Chambliss)

Dem Favored – Shaheen (D-NH)

Lean GOP – SD Open (Johnson, D), WV Open (Rockefeller, D)

Lean Dem – IA Open

Toss-Up Tilt GOP – MT Open

Toss-Up Tilt Dem - Begich(D-AK), Hagan (D-NC)

Pure Toss-Up – Landrieu (D-LA), Pryor (D-AR)

* Ratings from Stu Rothenberg

2014 House Elections

Current House Breakdown

* Includes 1 currently vacant Republican-held district (Bonner, AL-01)

Analysis Democrats need a 17-seat gain to win control of the House in 2014

Number of House seats in the 113th Congress, by party

2014 House Elections

Only 67 Competitive or Potentially Competitive Democrats Must Run the Table to Win Back House in 2014

Number of House seats in the 113th Congress, by party

2014 House Elections

218

Democrats must win every Solid Democrat, Likely Democrat, Lean Democrat, Toss-Up, and Lean Republican district, and 4 Likely Republican districts, to take back the House

(96%)

2014 House races by 2012 presidential performance (Obama vs. Romney)

(93%)

Long-Run Effects of Redistricting Means House is Fairly Inelastic in 2014

2014 House Elections

The Presidential Race will begin in 1 year

The playing field is crowded so candidates will:

• Try to carefully stand out

• Attempt to be helpful to candidates in 2014

• Implode one at a time

2016 Most Likely Candidates

Thank You