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"Deal or No Deal? U.S. Divided on E.U. Insurance Agreement," Risk.net March 1, 2017

Frederick J. Pomerantz, a partner in Goldberg Segalla’s Insurance Regulatory Practice Group, spoke recently to Risk.net on the implications of a hot-button covered agreement on insurance regulation with the European Union signed by the Obama administration just days before President Trump took office.

As this publication focused on risk management and complex financial products points out, state insurance regulators in the United States are alarmed their authority will be pre-empted by the Federal Insurance Office (FIO), which Republican lawmakers want to abolish. But some Republicans welcome the improved access to EU markets for large insurers. The deal also removes the threat of E.U. Solvency II group supervision being imposed on U.S. insurers with European operations.

“Of necessity, this step is really the best thing that could happen to the U.S. insurance industry,” Fred said. “It eliminates the need to focus on issues of equivalence of the U.S. system, which has not been given unconditional equivalence status [by the E.U.]. Assuming this covered agreement is implemented, it takes that issue off the table and removes that degree of scrutiny of U.S. regulation from abroad that would otherwise be continuing because of Solvency II.”

Regarding the FIO, Fred pointed out that the Financial Choice Act (HR 5983), first introduced in September 2016, would potentially disestablish it: “The Financial Choice Act would repeal the portion of Dodd-Frank that created the FIO and legislated its powers, and would substitute in its place the office of the Independent Insurance Advocate, which would have a more limited role and not nearly as much power as the mandate the FIO has under Dodd-Frank. That could be done quickly, or not, but it could have an impact in theory because of the negative views the Trump administration holds with regards to the E.U.”

The U.S.–EU deal, Fred noted, also may inevitably change the way third-country insurer regulate their own markets. He expects many major jurisdictions to choose something close to either the U.S. risk-based capital or E.U. Solvency II approach. “One or the other will probably be adopted in many other countries, so those countries too can enjoy the benefits of certification in the U.S. and also equivalence in the E.U.,” Fred said.

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