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FIO, Congress Urged to Take Greater Roles to Boost Industry's Trade Globally

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Lawmakers, industry and government officials pushed for supervisory harmony and a robust role and involvement by the U.S. Federal Insurance Office (FIO) abroad to increase international competitiveness for the U.S. insurance industry in hearing May 17 before a House Financial Services Committee panel.

Insurers, regulators and consumer advocates were united in testimony that emphasized working together break down barriers to create a level playing field for domestic insurers, and create more clarity, consistency and cohesion so insurers can expand their market abroad and create jobs domestically by decreasing costly and imposing supervisory burdens.

The testimony was before the Insurance, Housing and Community Opportunity Subcommittee of the House Financial Services Committee, chaired by Rep. Judy Biggert, R-Ill.who said in her opening statement she wants to know what more Congress can do to help the insurance industry and help it remain competitive abroad.

Insurance executives pushed for the use of the federal megaphone of Congress, FIO, the office of United States Trade Representative (USTR) and other federal officials to emphasize the need to resolve conflicts over trade, transparency, capital standards, conflicting regulatory standards and other supervisory and free market concerns.

FIO Director Michael McRaith testified FIO’s priorities were a strong American economy and job opportunities and spoke of a recent trip to China with Treasury Secretary Timothy Geithner to discuss on insurance trade issues. 

The force and promise of FIO was repeatedly trumpeted in testimony and throughout the hearing. Indeed, there was a chorus of support for FIO’s role internationally and even domestically from all quarters.

“The FIO can be of particular help in ensuring the USTR’s success by using its bully pulpit to advance the interests of the U.S. insurance sector and by coordinating efforts to resolve any conflicts between the federal government and states over insurance, stated The Council of Insurance Agents and Brokers (CIAB) in submitted testimony.

FIO has the ability to enter into binding agreements with countries on trade issues and we hope Director McRaith can work settlement of issues rather than just discussion, Transatlantic Holdings Inc. CEO Michael C. Sapnar told the panel. 

Another witness pushed for greater state regulatory uniformity lead by FIO. 

In many foreign markets there are issues with market entry, product approvals, commitment of capital, and operations making business less predictable, according to MetLife, which trumpeted free trade agreements or FTAs to advance the industry’s cause, more business overseas and more jobs domestically.

“The hearing helped assured that insurance issues have a high place on the US international engagement agenda and puts outs the Congress on the field of play in representing U.S. interest, along with the FIO, USTR, other federal agencies and the NAIC,” said David Snyder, vice president of the American Insurance Association (AIA). 

“To tap that overseas growth, it is essential to have free and open trade between nations, and agreements that recognize the importance of the services sector and create level playing fields for our business to compete in vibrant markets around the world. This is core to free trade agreements and why MetLife strongly supports the recently enacted free trade agreements with Colombia, Panama, and South Korea, and the pending TPP agreement,” testified MetLife Vice Chairman William Toppeta. 

TTP is the Trans Pacific Partnership, a high-standard trade agreement being negotiated between the US, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam.

“Under the Kore a US Free Trade Agreement (KORUS FTA), for instance, US insurers will have notice of, and a more meaningful opportunity to comment on, Korea’s insurance regulations in a predictable manner and well in advance of these regulations taking effect,” Toppeta stated.

MetLife and the AIA, among others, pushed for Congress, FIO, the NAIC, and others to make US-European Union mutual understanding on solvency system a high priority. Solvency II has become somewhat bogged down in the debate about equivalence of structures in addition to outcomes, and the US industry and regulators have not been ready to sign on to a European solvency structure. See:

MetLife would like to see the EU recognize the U.S. system of regulation as equivalent for Solvency II purposes. 

Complicating that debate continues on whether insurance is systemically risky under Dodd Frank and the systemically important financial institutions (SIFI) discussion and insurers worry that designations by the Financial Stability Oversight Council (FSOC) created by Dodd Frank would further distort competition.

Lawmakers and insurers seemed troubled by the potential treatment of insurers by regulators under a bank-centric model under Federal Reserve supervision.

“We have to make sure we regulate the business of insurance and not as banking,” Toppeta told the panel during questioning.  This was the subject of a hearing by another House Financial Services panel a day prior. See:

“When a traditional insurance business fails, not every car owner is going to get into a car accident immediately upon dissolving,…there is not the same prospect of a run,” McRaith told the panel. FIO is working with the IAIS [International Association of Insurance Supervisors) on the “criteria, methodology and timing” of SIFI designations “so no U.S. insurer is disadvantaged through global designation of [SIFIs],” McRaith told lawmakers.

However, McRaith said if we were to go back several years, the FSOC would find AIG systemically risky and that it was important to look at a company as a whole, not just the traditional insurance enterprise “and look under the hood” to see if there is any systemic risk. 

NAIC President and Florida Insurance Commissioner Kevin McCarty told the panel that when an insurer, as opposed to a bank is under stress, there is more of a chance for the insurance companies “to rebound.” McCarty said to prevent systemic risk, the insurance enterprises of a company should be walled off.  

“For all these reasons, we urge the Federal Reserve and FSOC to work with the IAIS and the FSB, through the FIO and the NAIC, to coordinate the development of frameworks for the management of domestic and global SIFIs based on the existing insurance risk-based framework. This would avoid inefficiency, increased costs, the creation of an un-level playing field and resulting market distortion,” Toppeta stated. 

At the global level, the IAIS is developing an insurance-specific assessment method to identify global systemically important insurers (SIIs or G-SIFIS, as they are known in the US parlance). Its draft is expected to be released soon, and an IAIS November 2011 Report has already concluded that traditional insurance activities do not generate or amplify systemic risk, MetLife pointed out.

 The IAIS continues its work on prudential measures to apply to global SIFIs with a target of end 2012.

IAIS is also nearly mid-way through the creation of the Common Framework for the Supervision of Internationally Active Insurance Groups (Com-Frame.)

“We urge that Congress follow this project and insist that it create a framework of clear roles and responsibilities for supervisors so there are no gaps and also no duplication of regulatory functions, the AIA said in a statement for the record. 

McRaith ended the hearing on a positive note, saying once the issues are addressed, he sees U.S. and European parties walking “arm in arm” in mutual understanding on Solvency II.



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