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

WASHINGTON–A proposal to allow the Treasury Department to enter into "international agreements" on solvency measures is drawing strong objections from state insurance regulators and lawmakers

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

As the House Financial Services Committee prepared to deal with the legislation, state insurance regulators told members of the panel that the provision constitutes "a significant shift of authority from the states to the federal government," and should be removed.

The measure has divided members of the insurance industry. Those who support it see it as necessary to ensure that the Treasury Department has broad authority to negotiate with other countries on uniform solvency regulations. They include large domestic insurers and foreign insurers doing business in the U.S.

"We're hopeful that Congressman [Paul] Kanjorski holds firm on his October 16 draft that was circulated by the committee," said Blain Rethmeier, a spokesman for the American Insurance Association.

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

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

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

"We share the concerns expressed by the NAIC regarding some of the broad authorities granted to this new federal office. The preemption authorities under the current draft have the potential to create an unlevel playing field," said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies.

State regulators' concerns about the provision are contained in a letter sent to every member of Congress Friday by the National Association of Insurance Commissioners.

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

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

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

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

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

The letter says states realize they do not have the constitutional authority to enter into nationally binding regulatory agreements without federal action.

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

The letter adds that it "is also important to note that the federal government already has broad authority to enter into binding trade agreements to open foreign markets for U.S. insurers and to open U.S. markets for foreign insurers, and there is extensive consultation with Congress, governors, state legislators and regulators before any agreement preempts state insurance regulation."

NCOIL officers for their part, wrote the committee leadership that the legislation, "moves well beyond previous committee discussions and towards the establishment of a federal insurance czar at the U.S. Treasury Department–a kind of slippery slope that NCOIL cautioned against throughout 2008."

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

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

And now we understand that optional federal charter proponents are pushing the Committee to approve an amendment for the FIO to study 'State insurance regulatory structures' during markup [drafting] this week. Given the self-evaluative nature of state insurance regulation, we feel that an FIO study is neither necessary nor warranted."

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