U.S. House Financial Services Subcommittee on Housing and Insurance holds hearing on reinsurance and credit risk transfer to move risk to private capital

The U.S. House Financial Services Subcommittee on Housing and Insurance held a hearing on how reinsurance and credit risk transfers (CRT) can distribute catastrophic and credit risk across markets and reduce taxpayer exposure. Discussion focused on the role of private capital in housing finance and public programs, with Full Committee Chairman French Hill framing risk transfer tools as a way to bring private capital in before losses fall on taxpayers. Testimony from Everest Group’s Anthony Vidovich described a competitive catastrophe reinsurance market with new capital inflows and declining rates in some catastrophe-prone areas, alongside increased competition from new entrants. Members also discussed private mortgage insurance and CRT transactions as mechanisms to support access to homeownership while transferring credit risk away from taxpayers. On public-sector risk transfer, Vidovich pointed to the National Flood Insurance Program’s use of both treaty reinsurance and catastrophe bonds to address extreme tail risk. He also argued that current U.S. bank regulatory capital rules do not clearly allow the use of insurance and reinsurance for capital relief, contrasting this with Basel III’s recognition of credit protection from prudentially regulated insurers, including reinsurers, and warning of potential impacts on capital requirements and the cost and availability of credit. Other witnesses, including Mr. Walker and R Street Institute’s Jerry Theodorou, emphasized the maturity of private-market tools for transferring government-linked risks and the role of reinsurance in absorbing mega-catastrophe losses that could otherwise erode insurers’ capital.