Michael McRaith, director of the Federal Office of Insurance (FIO), is moving aggressively to reduce the differences between European and U.S. insurance regulatory and supervisory schemes.
McRaith met last Wednesday with officials of the European Insurance and Occupational Pensions Authority (EIOPA) and industry officials in Washington said he told them before he left that he hopes to have a template in place by November for smoothing over differences between the two regulatory schemes.
The meeting, held in Frankfurt, was also attended by Susan Voss, Iowa commissioner and immediate past president of the National Association of Insurance Commissioners (NAIC), and Terri Vaughan, NAIC executive director.
According to industry lawyers and lobbyists, a key stumbling block is the different rules foreign reinsurers must use when they enter the U.S. market.
The problem was supposed to have been solved by passage last November by the full NAIC of a landmark model law that seeks to reduce reinsurance collateral requirements for non-U.S. reinsurers domiciled in qualified jurisdictions.
Apparently, however, NAIC action has not done the trick.
Industry lawyers and lobbyists familiar with McRaith’s visit said they believe the U.S. will likely to have to agree to some uniform collateral requirements for foreign insurers beyond the ability of the NAIC to enforce in order to facilitate an even playing field for U.S. insurers doing business in Europe.
Meanwhile, rumors are circulating in official circles in Washington that the Obama administration will release over the August congressional recess, the long-delayed report on insurance modernization that the FIO and McRaith have been working on.
Difficulties in working together between the FIO and the U.S. Trade Representative (USTR) over who will primarily represent the U.S. on international insurance issues such as prudential regulation and an even playing field with regard to Solvency 2 capital are delaying the report, according to industry lobbyists and officials.
Industry lobbyists and lawyers say McRaith is working to reduce the logjam between the FIO, which is based in Treasury, and the USTR.
McRaith issued a statement through the EIOPA after the meeting in which he said that "The insurance dialogue between the EU and the U.S. is critical to the promotion of transatlantic understanding and cooperation, and to the promotion of greater consistency and alignment in insurance regulation. We look forward to continuing our work with our EU counterparts and U.S. state regulators for the benefit of insurance consumer protection and business opportunity in both jurisdictions."
The Treasury Department today declined to confirm any details of the meeting or McRaith’s statement. They had no statement.
According to Gabriel Bernardino, chairman of EIOPA, the EU and the U.S have launched the talks in order to increase mutual understanding and cooperation with a view to identifying the main commonalities and differences of the two insurance regulatory and supervisory regimes.
“This dialogue will allow regulators at both sides of the Atlantic to find areas where further compatibility and convergence will be possible and could pave the way for future decisions,” Bernardino said.
He focused on the progress in the analysis of the EU and U.S. regulatory and supervisory systems. This analysis is related to seven key areas: professional secrecy; group supervision; solvency & capital requirements; reinsurance and collateral requirements; supervisory reporting, data collection & analysis and transparency to the market; supervisory peer reviews; independent third party review, and supervisory on-site exams/inspections.
Bernadino said the next Steering Committee meeting is scheduled for October in Washington.
As for the report, several insurance industry and federal officials said the USTR is objecting to the role the FIO envisions it will play in the future in negotiating international trade pacts. Sources declined to comment by name.
The issue is of deep concern to the insurance industry. Its officials, both property and casualty and life, want the Treasury Department to take the lead role in negotiating trade agreements with foreign countries.
That’s because the FIO and top Treasury officials are developing an expertise on insurance issues and have also developed a mechanism for dialogue with state officials, who are the designated overseers of insurance.
The report was mandated by the Dodd-Frank Act (DFA), and was supposed to be released Jan. 21.
Last month the issue was first brought up by insurance industry officials. USTR officials, who declined to be quoted by name, cited the language in the DFA dealing with the FIO which states that, the Treasury secretary is required to consult with the USTR before initiating or concluding any international insurance agreements on "prudential measures," or measures concerning financial stability.
At the same time, in comments last month to the National Underwriter, Rep. Barney Frank, D-Mass., a key drafter of the DFA, said he had not been informed of any friction between the USTR and the FIO/Treasury draft now in the hands of Office of Management and Budget.
The language establishing the FIO, crafted by House Financial Services Committee officials, originally called for the FIO/Treasury to have full authority to negotiate international trade pacts regarding insurance.
However, it was revised to establish joint authority when Rep. Sander Levin, D-Mich., then chairman of the House Ways and Means Committee, objected to the original language, with the full support of the USTR.
The House Ways and Means Committee has jurisdiction over trade issues and the USTR. The language was then changed to provide for a joint role before the bill was enacted by Congress in July 2010.
A source close to the USTR contended that, “By statute, the Office of the United States Trade Representative is the lead authority regarding trade and investment matters, including with respect to insurance.”
The source contended that, “the USTR has a well-established and effective mechanism for coordinating with other agencies in its administration of the U.S. trade agreements program.”
Further, the DFA created the FIO to advise the Secretary of the Treasury on domestic and prudential international insurance policy issues, the source said.
The source added that DFA “also authorizes the Secretary of the Treasury and the USTR to jointly to negotiate and enter into bilateral or multilateral agreements regarding prudential matters with respect to the business of insurance or reinsurance.”