May 02, 2017

Brown Opening Statement at Hearing on U.S.-EU Covered Agreement on Insurance Rules

WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – released the following opening statement at today’s committee hearing entitled, "Examining the U.S. – EU Covered Agreement." 

Brown’s remarks, as prepared for delivery, follow.

Senator Sherrod Brown - Opening Statement
Hearing: "Examining the U.S. – EU Covered Agreement"
May 2, 2017

Thank you, Mr. Chairman, for holding today’s hearing and thank you to our witnesses for your testimony.

Our state-based insurance system is unique throughout the world.

It has largely served us well, and we should fight to maintain it, including by rejecting efforts by Europe to impose its Solvency 2 Accord, or insurance capital rules, on U.S. insurers.

At the same time, it means that companies that want to operate internationally face challenges, and we need a system that works for them.

The 2008 financial crisis showed that there were shortcomings in the consolidated supervision of international insurance conglomerates.

Since the crisis, the state insurance regulators have worked on proposals to develop comprehensive supervision and capital frameworks for insurance companies. 

While some progress has been made, there is still more to be done.

To its credit, at the federal level, the Federal Reserve’s work on both fronts has been encouraging.

It has proposed a useful group capital framework for the insurers that it supervises, and developed consolidated governance and risk management standards for Systemically Important insurers.

Turning to the Covered Agreement that we are here to discuss:

As a single entity that speaks on behalf of the U.S. on insurance matters, I believe that the Federal Insurance Office – Mr. McRaith in particular – has served a valuable role.

This agreement offers U.S. and EU reinsurers alike relief from both requirements to have a local presence and local collateral.

This is not a small consideration, when EU countries like Germany have put our companies on notice to set up physical locations, a significant cost to U.S. companies.

It also establishes certainty about when U.S. standards will qualify as “equivalent” under Solvency 2 for U.S. insurers, preventing Europe from imposing its rules on our companies – if not permanently, at least for five years.

To the extent that there are some disagreements on the meaning of terms in the agreement, particularly as they relate to capital, I hope that today’s hearing will offer an opportunity to clarify those terms.

And if there are concerns about the level of transparency and consultation in this and other international negotiations, that is certainly a matter that should be debated, including whether any reasonable reforms are necessary.

But let me close with two concerns that I have.

First, I am concerned by efforts to hamstring or eliminate the FIO.

Eliminating an important voice domestically and internationally on insurance regulation, and handing these negotiations over to the US Trade Representative, who lacks insurance expertise, would be a step in the wrong direction.

Second, I do not think that the answer to discontents with the process of some of these international financial discussions is to include financial regulations in future free trade agreements.

Former Treasury Secretary Jack Lew said that "watering down, in any way, U.S. regulatory standards is not appropriate in trade agreements."

He also said the United States should call on the world community in the appropriate settings, like the G-20 and the Financial Stability Board, to "try and drive that race to the top."

I could not agree more.

We should push other countries to raise their standards, not engage in a race to the bottom, as so many of these free trade agreements do.

I am also skeptical that the answer to concerns about transparency in insurance agreements is to replace them with a trade negotiation process where corporate CEOs often have better access to information about trade negotiations than the American people’s elected representatives.

So again, I thank the Chairman for holding this hearing, and I look forward to hearing from our witnesses.