In testimony today before the House Financial Services Subcommittee on Housing and Insurance, NAMIC president and CEO Charles M. Chamness said the covered agreement recently negotiated between the United States and the European Union failed to achieve the goals set out by Treasury and the United States Trade Representative at the outset of the negotiations. Further it creates a precedent that would result in forced changes to the U. S. system of insurance regulation based on the demands of European regulators.
“NAMIC has had deep concerns that a covered agreement, a deal made behind closed doors that needs no legislative approval to implement, had the potential to significantly alter or preempt aspects of the state-based system of insurance regulation,” Chamness said. “Unfortunately for the vast majority of NAMIC members and their customers, those concerns have been realized.”
Equivalency for U.S. regulation was among the chief priorities outlined by the Federal Insurance Office in announcing negotiations for the covered agreement. The FIO was given authority to negotiate covered agreements under the Dodd-Frank Act, and the agreements do not require congressional approval. In his testimony, Chamness noted that even negotiating for mutual recognition represented a concession to the EU.
“There is no finding anywhere in the covered agreement that U.S. group supervision is adequate, mutual, or equivalent. Instead it merely calls for the EU to return to the pre-Solvency II status quo of not unfairly punishing U.S.-based insurers,” Chamness said. “Nor is there any guarantee that this status quo will continue at the end of the agreement’s five-year term.”
“To be clear – NAMIC strongly supports U.S. insurers doing business overseas, and we are fundamentally opposed to the unfair trade barriers the EU is attempting to erect. But it is important to remember that the equivalency determination is an entirely contrived problem manufactured by the EU,” he said. “That determination is being used simply as a source of pressure on the U.S. to continue to alter its regulatory system to the EU’s liking.”
Chamness identified the significant changes demanded of U.S. states under the agreement, including the elimination of collateral requirements for European reinsurers and a requirement for a group-wide capital standard for U.S. insurers.
“Implementation of this kind of group capital standard will shift the U.S. from a legal entity regulatory system that protects policyholders toward an EU-style group supervision system designed to protect investors and creditors,” Chamness said. “This would not be a win for U.S. policyholders.”
While Congress alone cannot stop the agreement from taking effect, Chamness urged lawmakers to work with the administration toward a better solution. He said, “On the whole, it is bad for the vast majority of U.S. insurers which do not have operations in Europe and which lose reinsurance collateral and get nothing in return other than new group supervision and future regulatory uncertainty.”
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