On May 24, 2018, President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act) into law, which amends certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) of 2010. While the bulk of the Act’s provisions provide significant regulatory relief for middle-market banks, it also provides clarity with respect to U.S. participation in the international insurance standard-setting process.
Dodd-Frank established the Federal Insurance Office (FIO), which is housed within the U.S. Department of the Treasury (Treasury). While the FIO doesn’t hold any regulatory authority, Dodd-Frank granted it the authority to represent the U.S. federal government in certain international settings, including at meetings of the International Association of Insurance Supervisors (IAIS), which works to establish international insurance regulatory norms. In an effort to increase the transparency of the federal government’s participation in these international groups, the Act requires Treasury, the Federal Reserve and the FIO to “support increasing transparency at any global insurance or international standard-setting regulatory or supervisory forum in which they participate.” The Act specifically requires representatives of these agencies to testify before Congress about their efforts to achieve increased transparency. It further requires these federal agencies reach a consensus with U.S. state insurance regulators before taking a position on or consenting to the adoption of international insurance standards.
These transparency and consensus-seeking provisions come on the backdrop of two significant international insurance matters currently being adjudicated. First, the IAIS is in the process of establishing a risk-based global insurance capital standard. The U.S. capital standards implemented by state regulators don’t currently fully converge with the proposed global standard, but efforts are underway to find common ground. Second, in September 2017, Treasury, the Office of the United States Trade Representative and the European Union (EU) announced the signing of a covered agreement. A covered agreement is a concept included in Dodd-Frank that gives Treasury the authority to address areas of U.S. state insurance law that treat foreign insurers differently than U.S. insurers. One such area is the collateral requirements for U.S. insurers who cede risk to foreign reinsurers. Historically, U.S. state regulators required significant (often 100 percent) collateral requirements for U.S. insurers to admit balances owed from foreign reinsurers on their statutory financial statements. While model laws passed by the National Association of Insurance Commissioners in 2011—and adopted by approximately 42 states to date—have lessened these collateral requirements, the covered agreement requires states to eliminate all reinsurance collateral requirements with EU-domiciled reinsurers over a five-year period. The Act will give U.S. state regulators additional leverage and influence as these and other matters are adjudicated on the international scene.
The Act’s signing should help further the transparency of these efforts and provide consensus with U.S. state regulators as these efforts to converge and standardize across the globe continue. The effect on U.S. insurers is yet to be known, but this legislation solidifies the state-centric insurance regulatory model, as it gives U.S. state regulators explicit participation in these international settings.
Contact Mike or your trusted BKD advisor if you have questions.