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Treasury urged to turn to insurers to help deal with illiquid assets

The US Department of Treasury has been told that the insurance industry can play a big role in easing the global financial crisis.

This article appears courtesy of Reactions.

Testifying before the House Committee on Financial Services in Washington, DC, Cameron Findlay, executive vice-president and general counsel of broker Aon, said he believed that the creation of an insurance pool would help financial institutions deal with illiquid assets.

Findlay is keen to see the Treasury make greater use of section 102 of the Emergency Economic Stabilization Act – which refers to the insurance of troubled assets under the act – and establish a programme to insure the value of troubled assets.

The crux of Findlay's proposal was first outlined in a letter from Aon to Neel Kashkari, interim assistant secretary for financial stability with the US Treasury department, last month.

Participants in the asset stabilisation pool would have a portion of the principal and interest from specific, illiquid assets guaranteed. The Aon programme would insulate an asset holder from the decline in value resulting from the non-payment, or expected non-payment, of principal and interest.

The proposal, Findlay argues, would use a combination of risk retention, risk pooling and government backstop liquidity that would benefit taxpayers, financial institutions saddled with illiquid assets, and homeowners.

"The insurance of illiquid assets would protect financial institutions and the economy," said Findlay, who was speaking on behalf of the Council of Insurance Agents and Brokers.

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