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McRaith: U.S. Will Not Submit to EU’s Solvency II

The United States will not submit to the European Union’s (EU’s) formal Solvency II equivalence process.
McRaith: U.S. Will Not Submit to EU’s Solvency II
October 5, 2016

The United States will not submit to the European Union’s (EU’s) formal Solvency II equivalence process to assess and rule on the adequacy of the U.S. insurance regulatory system. That statement was made by Federal Insurance Office (FIO) Director Michael McRaith, who said during a hearing of the House Financial Services Housing and Insurance subcommittee that Solvency II “is not a system that will be duplicated within the United States.”

The EU Solvency II approach, which prioritizes investor protection and a greater intervention into the private sector, is dramatically different from the U.S. system focused on policyholder protection backed by guaranty funds in every state.

“It will never work in the U.S.,” McRaith said, referring to the Solvency II approach. “Simply put, IAIS (International Association of Insurance Supervisors) standards must serve the interest of U.S. consumers and industry and our national economy or those standards will neither receive our support nor be implemented in our country.”

The statements by McRaith appear to represent the first time that the U.S. Treasury Department, of which the FIO is a part, has seemed to take a stand against pressure from the EU to move toward federal regulation of insurance. However, talks with the EU for a covered agreement have been conducted in secret. The FIO supported closing the talks, while the NAIC wanted to keep them open.

Tennessee Insurance Commissioner Julie Mix McPeak, who also serves as vice-chairwoman of the IAIS executive committee, questioned the ongoing lack of transparency of the talks. She also questioned the necessity of a covered agreement, noting that existing authority would allow the EU to grant the U.S. system as equivalent.

“Instead of negotiating a potentially pre-emptive agreement behind closed doors to solve a problem of the EU’s creation, we again urge our federal colleagues to push back on the EU and urge them to reconsider their laws before agreeing to pre-empt ours,” McPeak said.

If Mr. McRaith’s statements can be taken at face value, it is a good sign. However, what’s being negotiated behind closed doors is still not known. In her testimony, Commissioner McPeak said state regulators and members of the NAIC have largely been locked out of the discussions.

PIA reiterates its support for the Transparent Insurance Standards Act, H.R. 5143, which would mandate disclosure and give Congress a 90-day window to approve or reject any international proposal. The legislation also prohibits the U.S. from entering into an international covered agreement that would grant the Federal Insurance Office (FIO) any authority to supervise or regulate the business of insurance.

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