House Financial Services Committee Issues Report on Transparent Insurance Standards Act

Targeted News Service

WASHINGTON, Nov. 29 -- The House Financial Services Committee issued a report (H.Rpt. 114-831) on legislation (H.R. 5143) to provide greater transparency and congressional oversight of international insurance standards setting processes. The report was advanced by Rep. Jeb Hensarling, R-Texas, on Nov. 22.

Excerpts of the report follow:

Purpose and Summary

H.R. 5143, the "Transparent Insurance Standards Act of 2016," enhances Congress's oversight of international deliberations relating to insurance standards. More specifically, the legislation establishes a series of requirements to be met before the Treasury Department or the Federal Reserve (Fed) may agree to, accept, establish, enter into or consent to the adoption of a final international insurance standard.

First, the Treasury and the Fed must publish in the Federal Register, any proposed final standard and allow for public comment. In so doing, the agencies must provide a joint analysis on the impact of the standard on consumers and U.S. insurance markets. Before agreeing to any international standard relating to capital, the Fed is required to first promulgate its domestic capital standard rule. H.R. 5143 imposes similar requirements for negotiations concerning covered agreements. The legislation sets negotiating objectives for U.S. parties and also mandates that the Secretary of the Treasury and the Chairman of the Board of Governors of the Fed report and testify to Congress twice annually. Finally, H.R. 5143 helps to ensure that the Financial Stability Oversight Council's (FSOC) Independent Member with Insurance Expertise is permitted to assist the FSOC in international discussions and attend meetings of international bodies where insurance standards are discussed.

Background and Need for Legislation

For nearly 150 years, U.S. insurance companies of every kind--including property-casualty, life, reinsurance, health, and auto--have been regulated primarily by the states. Congress and the states have occasionally reviewed the effectiveness of the state-based regulation of insurance and coordinated efforts to achieve greater regulatory uniformity. In 1945, Congress passed the McCarran-Ferguson Act (15 U.S.C. Sec. Sec. 1011 et seq.), which confirmed the states' regulatory authority over insurance except where a federal law expressly provides otherwise.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203) enlarged the federal government's role in the insurance industry by creating a federal office specifically tasked with insurance matters. The Dodd-Frank Act established a Federal Insurance Office (FIO) at Treasury and charged the director of the FIO with representing the interests of U.S. insurers during the negotiation of international agreements and advising the Office of the U.S. Trade Representative (USTR) during trade negotiations.

The Dodd-Frank Act brought insurers, insurance holding companies, and insurance subsidiaries within the purview of the newly created FSOC, a 15-member inter-agency group charged with identifying risks to the financial stability of the United States. The Dodd-Frank Act requires that three of the FSOC's members represent the perspective of the insurance industry. The Dodd-Frank Act also grants the Fed regulatory authority over non-bank institutions designated by the FSOC as systemically important and transferred to the Fed supervisory responsibility for savings and loan holding companies, a group that includes numerous U.S.-domiciled insurers. It is this authority that provides for the imposition of a capital standard on domestic insurance companies, currently being discussed at the Fed. Even though the Dodd-Frank Act expanded the federal government's oversight of the insurance industry, it also preserved the states' general authority to regulate insurance and to resolve failed insurance firms.

H.R. 5143 addresses concerns that international negotiations should be consistent with the intent of Congress on international issues to follow a more insurance centric approach for insurance issues, including collaborating with the state insurance regulators and seeking greater equivalent recognition of the U.S. insurance regulatory system internationally. Hence, H.R. 5143 would create a more formalized role for Congressional monitoring of international standards and agreements. The legislation would establish a series of requirements to be met before FIO, the Fed, or any other party to these international conversations could consent to the adoption of a final insurance standard. Moreover, similar standards would be set for negotiations on covered agreements, including the covered agreement currently being negotiated with the European Union.

H.R. 5143 also outlines a more robust role for the FSOC Independent Member with Insurance Expertise, strengthening U.S. negotiators and its ability to advocate for the policies that suit U.S. insurance markets and consumers.

H.R. 5143 will provide for greater transparency, allow for a stronger U.S. negotiation team, and indicate to foreign bodies that the United States will lead and not be led.

Hearings

The Committee on Financial Services' Subcommittee on Housing & Insurance held a hearing examining matters relating to H.R. 5143 on February 25, 2016.

Committee Consideration

The Committee on Financial Services met in open session on June 15 and 16, 2016 to consider the bill. An amendment in the nature of a substitute offered by Mr. Luetkemeyer was agreed to by voice vote. An amendment to the amendment in the nature of a substitute, offered by Mr. Royce, was agreed to by voice vote. An amendment to the amendment in the nature of a substitute, offered by Mr. Heck, was withdrawn. The Committee ordered H.R. 5143 to be reported favorably to the House as amended by a recorded vote of 34 yeas to 25 nays (recorded vote no. FC-115), a quorum being present.

Committee Votes

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion to report legislation and amendments thereto. The sole recorded vote was on a motion by Chairman Hensarling to report the bill favorably to the House as amended. The motion was agreed to by a recorded vote of 34 yeas to 25 nays (Record vote no. FC-115), a quorum being present. {GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Committee Oversight Findings

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

Performance Goals and Objectives

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee states that H.R. 5143 will provide for Congressional oversight of international negotiations concerning insurance matters by creating a more formalized role for such oversight.

New Budget Authority, Entitlement Authority, and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

Committee Cost Estimate

The Committee adopts as its own the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

Congressional Budget Office Estimates

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, August 31, 2016.

Hon. Jeb Hensarling,

Chairman, Committee on Financial Services,

House of Representatives, Washington, DC.

Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 5143, the Transparent Insurance Standards Act of 2016.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Matthew Pickford.

Sincerely,

Keith Hall.

Enclosure.

H.R. 5143--Transparent Insurance Standards Act of 2016

H.R. 5143 would require the Department of the Treasury and the Federal Reserve to provide additional reports and testimony to the Congress on international negotiations regarding regulatory standards in the insurance industry. Before agreeing to or adopting such standards, the bill would require that the Treasury and the Federal Reserve publish any proposed final standard, allow for public comment, and report to the Congress on the impact of those standards on U.S. consumers, markets, and state laws. The bill also would require the Federal Reserve to promulgate a rule on domestic capital standards before agreeing to any international standard related to capital standards for insurance firms. Finally, H.R. 5143 would require the Government Accountability Office (GAO) to review those reports on insurance regulations.

Based on information provided by the Federal Reserve, CBO estimates that enacting H.R. 5143 would increase costs to the Federal Reserve System for conducting the required analysis and for preparing reports and testimony. Those increased costs would reduce revenues paid to the Treasury by the Federal Reserve by $7 million over the 2017-2026 period; therefore pay- as-you-go procedures apply. Those changes are shown in the following table. Enacting the bill would not affect direct spending.

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 5143 AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL SERVICES ON JUNE 16, 2016

To view the table, click this link: https://www.congress.gov/congressional-report/114th-congress/house-report/831/1?r=3. In addition, based on information from the Treasury and the cost of similar activities, CBO estimates that implementing H.R. 5143 would cost $1 million in 2017 and less than $500,000 in subsequent years for the GAO report and the reporting requirements related to international standards. Such spending would be subject to the availability of appropriated amounts.

CBO estimates that enacting H.R. 5143 would not increase net direct spending or on-budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2027.

H.R. 5143 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would not affect the budgets of state, local, or tribal governments.

The CBO staff contacts for this estimate are Matthew Pickford (for federal costs) and Nathaniel Frentz (for revenues). The estimate was approved by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis.

Federal Mandates Statement

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office pursuant to section 423 of the Unfunded Mandates Reform Act.

Advisory Committee Statement

No advisory committees within the meaning of section 5(b) of the Federal Advisory Committee Act were created by this legislation.

Applicability to Legislative Branch

The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act.

Earmark Identification

H.R. 5143 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.

Duplication of Federal Programs

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the Committee states that no provision of H.R. 5143 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111- 139, or a program related to a program identified in the most recent Catalog of Federal Domestic Assistance.

Disclosure of Directed Rulemaking

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the Committee states that H.R. 5143 contains no directed rulemaking.

Section-by-Section Analysis of the Legislation

Section 1. Short title

This section cites H.R. 5143 as the "Transparent Insurance Standards Act of 2016".

Section 2. Congressional findings

This section sets forth Congressional findings concerning insurance regulatory matters.

Section 3. Objectives for international insurance standards

This section establishes 12 objectives of the United States regarding international insurance standards.

Section 4. Requirements for consent to adopt international insurance standards

This section prohibits the United States from agreeing to a final international insurance standard with an international standard-setting organization or foreign government or authority absent a public notice-and-comment period. Further, the United States may not agree to an international insurance standard adopting a capital standard unless (1) such standard is consistent with State-based capital requirements and (2) the Fed has issued capital requirements for insurance companies it supervises and the international standard is consistent with such Fed-issued requirements. Additionally, this section requires submission to Congress of a copy of the proposed final text of the international insurance standard together with a report on the standard's impact on State-based insurance regulation; certification that such standard will not result in any change in State law; and, with respect to an international standard proposing a capital standard, certification that the proposal is designed solely to help ensure that sufficient funds are available to pay claims to an insurer's policyholders in the event of the liquidation of that entity. Finally, this section provides that the above-described report must be subject to public notice and comment as well as review by the Comptroller General, and that the United States may not agree to an international insurance standard within 90 days of submitting the proposed text of the standard to Congress.

Section 5. Reports

This section requires the Treasury Secretary and the Fed Chairman to submit an annual report and testify at least every six months concerning efforts with state insurance commissioners with respect to international insurance standard- setting organizations and international insurance standards. This section also requires a report and congressional testimony on efforts by the Fed Chairman and Treasury Secretary to increase transparency at meetings of the International Association of Insurance Supervisors. Finally, this section requires that the Comptroller General report and testify concerning the transparency and accountability of outside organizations acting on behalf of the heads of State insurance departments on issues related to international insurance standards.

Section 6. Definitions

This section defines the terms "Board," "Covered Congressional Committees," "International Insurance Standard," "Secretary," and "State Insurance Commissioners."

Section 7. Treatment of covered agreements

This section establishes public notice and comment requirements for covered agreements; requires that the Treasury Secretary and USTR consult with and directly include State insurance commissioners in negotiations regarding a contemplated covered agreement; prohibits such an agreement from being used to establish or provide FIO or Treasury with general supervisory or regulatory authority over the business of insurance or with the authority to participate in a supervisory college or similar process; and provides that a covered agreement shall not be considered an international insurance standard for purposes of the Transparent Insurance Standards Act of 2016.

Section 8. Duties of independent member of Financial Stability Oversight Council

This section provides the Independent Member with authority to, among other things, consult with international insurance supervisors and international financial stability counterparts; assist in the representation of the United States in the International Association of Insurance Supervisors; and attend and participate in insurance and financial stability matters before the Financial Stability Board of The Group of Twenty and the Organization for Economic Cooperation and Development.

Section 9. State insurance regulator involvement in international standard setting

This section requires that parties representing the United States in international for a relating to insurance and financial stability consult with and seek to include in such meetings the State insurance commissioners.

Section 10. Rule of construction

This section provides that nothing in this Act or its amendments supports or endorses the domestic capital standard for insurers referred to in section 4(a)(2) or any such domestic capital standards established by the Board.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

MINORITY VIEWS

H.R. 5143, the "Transparent Insurance Standards Act of 2016," would prescribe strict negotiating objectives for United States representatives in international fora regarding international insurance standards, and would establish several new processes and reporting requirements to be completed before any standard could be agreed to. These requirements would add significant delays and limitations to the process for developing an international insurance capital standard, ultimately weakening the United States' ability to negotiate effectively for standards that best accommodate our unique regulatory regime.

Following the 2008 financial crisis, and specifically after the near-collapse of American International Group, Inc. (AIG), the Wall Street Reform and Consumer Protection Act (Dodd-Frank) established a new supervisory and regulatory framework to examine financial stability for insurance companies both domestically and internationally. Dodd-Frank created the Federal Insurance Office (FIO), which is directed in part to "coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters, including representing the United States, as appropriate, in the International Association of Insurance Supervisors (IAIS) and assisting the Secretary in negotiating covered agreements." Dodd-Frank also expanded the scope of the Federal Reserve's supervisory authority and it now serves as the consolidated supervisor of insurance holding companies that own federally chartered thrifts or banks, as well as non-bank systemically important financial institutions designated by the Financial Stability Oversight Council (FSOC).

FIO, the Federal Reserve, and state insurance commissioners are all actively engaged at the IAIS and they regularly coordinate with one another, ensuring that each aspect of the unique United States regulatory regime is adequately represented in any international negotiation. Despite their effective coordination and extensive work thus far to improve global insurance regulation, H.R. 5143 stops this work in its tracks and puts in place cumbersome and counterproductive requirements.

At best, H.R. 5143 is unnecessary because international insurance negotiations do not create binding U.S. law. Any such international agreement would only take effect domestically if regulations are promulgated by a federal or state regulator in accordance with U.S. law, including required notice and comment periods. At worst, H.R. 5143 is a harmful bill that includes requirements that are difficult if not impossible to achieve. For example, the bill requires the Treasury and Federal Reserve achieve "consensus positions" with state insurance regulators before any insurance-related negotiations or discussions with international regulators. Achieving a consensus position with more than 50 state commissioners is virtually impossible to achieve, which is one of the reasons that Dodd-Frank tasked FIO with representing the United States internationally.

H.R. 5143 is also opposed by Americans for Financial Reform.

Because this legislation would tie the hands of U.S. representatives, and prevent them from effectively negotiating on international insurance matters, the Minority opposes H.R. 5143.

Maxine Waters.

Gwen Moore.

Al Green.

Keith Ellison.

Stephen F. Lynch.

Wm. Lacy Clay.

The full text of the report is found at: https://www.congress.gov/congressional-report/114th-congress/house-report/831/1?r=3.

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; [email protected]; http://www.targetednews.com

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