NU Online News Service, Nov. 6, 12:08 p.m.EST

WASHINGTON–Legislation to create a Federal InsuranceOffice should contain language allowing it to preempt state lawwhere it conflicts with some forms of international tradeagreements, an official said.

"We firmly believe that with respect to international agreementson financial matters that there should be an appropriatelytailored, narrow preemption provision associated with it so thatwhen there is a state law provision that is in conflict with aninternational prudential agreement on discriminatory treatment of aforeign firm that there is a method for dealing with that," saidMichael Barr, assistant secretary of the Treasury for FinancialInstitutions.

His comments came as the keynote speaker at the WashingtonALI-ABA Conference on Life Insurance Company Products.

The Treasury proposal would give the Insurance Office theability to negotiate and inter into international agreements onprudential matters, such as uniform solvency regulations, but wouldmaintain the U.S. trade represenatives authoirty over internationaltrade agreements. The office would have the authority to preempt astate law provision that is in conflict with an internationalprudential agreement on discriminatory treatment of a foreign firm.Prudential issues relate to the safety and soundness of thefinancial system.

Mr. Barr sought to reassure supporters of state insuranceregulation that the FIO office would in most cases go through theNational Association of Insurance Commissioners when seekinginformation about insurers and the industry.

The only exception would be information needed to assess thehealth of potentially systemically-risky insurers, he said. And,that information would only be sought from holding companies, notinsurance subsidiaries.

The FIO "is not a regulator in any sense," Mr. Barr said. "Itwill have no examination authority."

Mr. Barr also touched on concerns raised in Congress thatinsurers will have no voice on the Systemic Risk Council that wouldbe created under another piece of legislation, the FinancialStability Improvement Act currently before the House FinancialServices Committee.

Specifically, he said that as assistant secretary for FinancialInstitutions he will oversee the FIO, and report to the Treasurysecretary.

"And the secretary of the Treasury will be representing the FIOon the oversight council," He said.

The Council representation issue was also raised during debateon the bill yesterday by Rep. Spencer Bachus, R-Ala., rankingminority member of the House Financial Services Committee.

He asked that the current language be changed to allow stateinsurance and banking regulators to have a vote on the Council;currently they would play only an advisory role.

Rep. Barney Frank, D-Mass., said he supported some role forstate insurance and banking regulators on the Council, saying thatnon-voting members "should have full weight" on the council.

However, Rep. Frank pointed out that there were "constitutionallimitations" to the role that state regulators could play on theCouncil.

The National Association of Insurance Commissioners and theNational Council of Insurance Legislators both have voiced concernthat giving the Treasury such authority constitutes "a significantshift of authority from the states to the federal government."

Action on the legislation has been delayed while Rep. BarneyFrank, D-Mass., chairman of the committee, meets with officials ofthe U.S. Trade Representatives Office to discuss the jurisdictionalissues raised by provisions in the legislation that would give theTreasury Department the authority to negotiate insurance tradepacts with foreign countries.

Congressional staff and industry lobbyists have said in recentdays that because of concerns raised by various parties, allpreemption language in the bill creating an FIO would beremoved.

But, Mr. Barr said, "that is certainly not my understanding ofwhat we proposed and it not my understanding what the House FSCintends to do."

Moreover, he said, it is not his understanding as to what eitherthe Treasury "or officials of the Ways and Means Committee areinterested in."