NU Online News Service, Oct. 27, 9:26 p.m.EDT

WASHINGTON–A proposal to allow the Treasury Departmentto enter into "international agreements" on solvency measures isdrawing strong objections from state insurance regulators andlawmakers

The language contained in the bill that would create a FederalInsurance Office was soundly criticized by the National Associationof Insurance Commissioners and National Conference of Insurancelegislators (NCOIL).

As the House Financial Services Committee prepared to deal withthe legislation, state insurance regulators told members of thepanel that the provision constitutes "a significant shift ofauthority from the states to the federal government," and should beremoved.

The measure has divided members of the insurance industry. Thosewho support it see it as necessary to ensure that the TreasuryDepartment has broad authority to negotiate with other countries onuniform solvency regulations. They include large domestic insurersand foreign insurers doing business in the U.S.

"We're hopeful that Congressman [Paul] Kanjorski holds firm onhis October 16 draft that was circulated by the committee," saidBlain Rethmeier, a spokesman for the American InsuranceAssociation.

He said the AIA is today sending a letter to Rep. Kanjorski,D-Pa., chairman of the Capital Markets Subcommittee of the Housepanel, and chief sponsor of the legislation.

Mr. Rethmeier added, "Any further weakening of the FederalInsurance Office's international authority would be detrimental tothe U.S.'s credibility on insurance regulatory matters ininternational negotiations and the property and casualty industry'sability to remain competitive."

But opponents of a strong federal role in insurance regulationoppose it as a significant intrusion into state rights.

"We share the concerns expressed by the NAIC regarding some ofthe broad authorities granted to this new federal office. Thepreemption authorities under the current draft have the potentialto create an unlevel playing field," said Jimi Grande, senior vicepresident of federal and political affairs for the NationalAssociation of Mutual Insurance Companies.

State regulators' concerns about the provision are contained ina letter sent to every member of Congress Friday by the NationalAssociation of Insurance Commissioners.

The language is contained in substitute language being proposedfor the Federal Insurance Office Act of 2009, H.R. 2609.

The bill is one of four that will be considered by the committeetomorrow.

"This term is derived from an exception to trade agreements,which allows a country to exempt broad regulatory power from tradediscussions under the premise that preserving that authority isnecessary for the solvency and stability of domestic financialmarkets," the letter said.

The letter was signed by Therese M. Vaughn, NAIC chief executiveofficer.

"Consequently, granting such broad authority to the Treasury tonegotiate these types of agreements over insurance would unravelthe exception," Ms. Vaughn continued.

The letter says states realize they do not have theconstitutional authority to enter into nationally bindingregulatory agreements without federal action.

But, the letter said, the need for such agreements "is rare andshould therefore be subject to a high degree of scrutiny andinvolvement by the affected regulators, if not additionally by theCongress."

The letter adds that it "is also important to note that thefederal government already has broad authority to enter intobinding trade agreements to open foreign markets for U.S. insurersand to open U.S. markets for foreign insurers, and there isextensive consultation with Congress, governors, state legislatorsand regulators before any agreement preempts state insuranceregulation."

NCOIL officers for their part, wrote the committee leadershipthat the legislation, "moves well beyond previous committeediscussions and towards the establishment of a federal insuranceczar at the U.S. Treasury Department–a kind of slippery slope thatNCOIL cautioned against throughout 2008."

New York State Sen. James Seward (R-Oneonta), the president ofNCOIL president said:

"NCOIL has long argued that the creation of any FIO, OII, or ONI[federal insurance agency] would represent the first step down apath to federal insurance chartering–a concept that few interestsoutside some large banks and insurance companies endorse.

And now we understand that optional federal charter proponentsare pushing the Committee to approve an amendment for the FIO tostudy 'State insurance regulatory structures' during markup[drafting] this week. Given the self-evaluative nature of stateinsurance regulation, we feel that an FIO study is neithernecessary nor warranted."