On May 2, 2017, the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the proposed Covered Agreement between the US and the EU. As in the February 16, 2017 hearing before the US House Financial Services Committee, the witnesses brought starkly different views to the senators about the nature, effect and wisdom of the Covered Agreement.
Background and Timeline
- 2010 Dodd Frank legislation creates Federal Insurance Office (FIO) within Treasury Department and authorizes FIO with US Trade Representative to negotiate agreements with foreign jurisdictions regarding prudential regulation of insurance and reinsurance
- November 2015 Congress informed of intent to begin Covered Agreement negotiations with European Union, identifying five stated goals for the agreement
- January 13, 2017 Negotiations complete and Covered Agreement submitted to Congress for 90-day waiting period required by Dodd Frank
- January 19, 2017 FIO Director McGraith resigns; to date, position remains vacant
- February 16, 2017 House Financial Services Committee holds hearing about Covered Agreement
- April 13, 2017 90-day waiting period expires
- May 2, 2017 Senate Committee on Banking, Housing, and Urban Affairs holds hearing on Covered Agreement
- May 15, 2017 Robert Lighthizer confirmed as Trump Administration US Trade Representative
The hearing witnesses were: Michael McGraith, Former FIO Director and Treasury negotiator of the Covered Agreement; Julie McPeak, President-Elect of the National Association of Insurance Commissioners and Tennessee Commissioner of Commerce and Insurance; Michael C. Sapner, President and CEO of Transatlantic Reinsurance Company and past Chair of Reinsurance Association of America, testifying on behalf of Reinsurance Association of America, American Insurance Association, American Council of Life Insurers and Council of Agents and Brokers; Stuart Henderson, President and CEO of Western National Mutual Insurance Company, testifying on behalf of the National Association of Mutual Insurance Companies; and David Zaring, Associate Professor of Legal Studies and Business Ethics, the Wharton School.
The Senate hearing did not unearth any notably new ground compared to that covered at the February 16 House hearing. Supporters of the Covered Agreement continue to assert that it is clear, it respects and preserves the primacy of the US state insurance regulatory system and it will save billions of dollars in compliance costs for US insurers operating in the EU. Opponents assert that the agreement is ambiguous, does not sufficiently recognize the US supervisory system and is a victory of the EU regulatory system at the expense of the US regulatory system. Key topics discussed included the EU's failure to recognize the US regulatory system as "equivalent," the possibility of federal preemption of the US system on some topics, the elimination of collateral requirements for overseas reinsurers operating in the US, possible changes in group versus legal entity supervision, and the failure to designate the role of US insurance regulators in the Joint Committee designated under the Covered Agreement to resolve implementation questions.
What Happens Now?
Treasury officials are silent about what the status of the Covered Agreement is at this point. But there is speculation that, with the confirmation of US Trade Representative Lighthizer, an administration decision on next steps will be announced soon. Interestingly, at the end of the May 2 hearing, Chairman Crapo and Ranking Member Brown volunteered that they would work together to address what happens when former insurance commissioner Roy Woodall's sixyear term as the insurance expert on the Financial Services Oversight Council (FSOC) expires in September 2017. There has been no word since then from either the senators or the Treasury Department on how this situation will be handled.