Publications

FIO Focus, Issue No. 7

The FIO's Authority to Assist the Treasury Secretary in Negotiating Covered Agreements
02.16.12

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Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

The Federal Insurance Office's Authority to Assist the Treasury Secretary in Negotiating Covered Agreements

Under the Dodd-Frank Act, the Federal Insurance Office (FIO) is authorized to assist the Treasury Secretary (Secretary) in negotiating "covered agreements."

A "covered agreement" is a specific type of international agreement defined by the Dodd-Frank Act as a written agreement between the U.S. and one or more foreign governments or regulatory entities that addresses insurance prudential measures and "achieves a level of protection for insurance or reinsurance consumers that is substantially equivalent to the level of protection achieved under State insurance or reinsurance regulation."

Prior to initiating negotiations for a covered agreement, the Secretary and United States Trade Representative (USTR) must consult with the House Committees on Financial Services and Ways and Means, as well as the Senate Committees on Banking, Housing and Urban Affairs and on Finance. During these consultations, the Secretary and USTR will address the nature of the agreement, how the agreement will achieve the FIO's priorities and responsibilities, and the effect implementing the agreement might have on existing state law. A "covered agreement" takes effect 90 days after the final text is submitted to Congress.

Where a state law is inconsistent with a "covered agreement," and provides less favorable treatment to foreign insurers than U.S. companies, the FIO Director may preempt conflicting state law. The FIO must follow procedures laid out in the Dodd-Frank Act to use the preemption authority. The preemption power is discussed in-depth in issue two of "FIO Focus".

The Federal Insurance Office's Involvement in International Insurance Matters

Under the Dodd-Frank Act, the FIO has the authority "to coordinate Federal efforts and develop Federal policy on prudential aspects of international insurance matters."

In his October 25, 2011, testimony before the House Subcommittee on Insurance, Housing and Community Opportunity of the Committee on Financial Services, FIO Director Michael McRaith explained that "[a]n important priority for the FIO is to bring clarity in international fora about U.S. positions on international insurance regulatory matters." Specifically, McRaith explained that "European adoption of Solvency II may have important implications for U.S.-based insurers and our system of insurance regulation."

As we reported in the previous issue of "FIO Focus," Deputy Assistant Secretary Mark Sobel of the U.S. Department of Treasury indicated in speech before European Financial Services Conference that the FIO and European Union (E.U.) are working on agreement to develop a work plan by year end.

The U.S.-E.U. High Level Working Group on Jobs and Growth

In November 2011, President Obama, European Commission President Barroso and European Council President Von Rompuy directed the Transatlantic Economic Council (TEC) to establish the High Level Working Group on Jobs and Growth (Working Group) to identify policies and measures to increase U.S.- E.U. trade and investment.

The TEC was established in 2007 by Section IV of the Framework for Advancing Transatlantic Economic Integration between the U.S. and E.U. The TEC's tasks include bringing together cabinet officials, senior policymakers, and regulators to advance economic integration between the E.U. and U.S.

The Working Group within TEC will be led by USTR Ron Kirk and E.U. Trade Commissioner Karel De Gucht. The Working Group is scheduled to release an interim report in June 2012, which will include policy recommendations and explain the practical means necessary to implement any policy measures. These recommendations may include enhanced regulatory cooperation to negotiate one or more bilateral trade agreements.

As part of developing the framework for the Working Group's interim report, on January 11, 2012, the USTR issued a request for comments in the Federal Register. The comment period closed on February 3, 2012. Below is a brief summary of comments submitted addressing the insurance industry and/or the FIO:

  • The Working Group should recognize insurance and reinsurance as a priority for political focus on solutions by regulators and policymakers.
  • Solvency II equivalency determinations should be based on regulatory outcomes, not judgments based on the methodologies used by different countries.
  • The Working Group should address, clarify and possibly work to remove restrictions on movement of data across international borders. This includes privacy restrictions and laws regarding where information can be stored and processed.
  • The Administration should work through the FIO and National Association of Insurance Commissioners (NAIC) to address collateral requirements for foreign reinsurers in states that have not passed the NAIC Model Credit for Reinsurance Act.
  • There is a need for greater uniformity between the regulatory requirements among the states, specifically with regards to reinsurance collateral requirements and the regulation and taxation of surplus lines insurers.
  • The U.S. and E.U. should collaborate on the ongoing discussions regarding the development of an international framework at the G20, and with the Financial Stability Board as well as the International Association of Insurance Supervisors.
  • A framework should be developed for the transfer and movement of skilled employees between jurisdictions.
  • Legislation that disallows a tax deduction for reinsurance premiums paid to a foreign affiliate is protectionist and unfair as it singles out foreign reinsurers for treatment worse than their U.S. based counterparts.
  • The Foreign Accounts Tax Compliance Act and Medicare, Medicaid and SCHIP Extension Act of 2007 impose significant compliance costs on European insurers that may have little or no contact with the U.S. insurance market.
  • A processes should be developed to ensure that a company is not designated "systemically risky" in a foreign jurisdiction, but not in its domiciliary jurisdiction.
  • A high-standard Bilateral Investment Treaty should be developed to codify a commitment to not discriminate against investors, allow capital to move freely and provide protection against expropriation.
  • The Working Group should develop processes for creating international supervisory colleges and address rules which hinder the sharing of confidential information among regulators.
  • The Working Group should develop a roadmap to resolve perceptions of bilateral trade restrictive or discriminatory laws, regulations or practices.
  • The Federal Crop Insurance Program (FCIP) may be an agricultural subsidy and a non-tariff barrier to trade. FCIP should be evaluated against the cost of a private insurance system to determine if it provides an unfair competitive advantage to U.S. domestic agriculture against goods from other countries.