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NAIC planning for possible covered agreement opposition, which could include legal maneuvers

The NAICis preparing to explore options to protect its turf — consumers and U.S. insurancecompany oversight — against the impact of insurance bilateral agreement negotiationsbetween the U.S. and the European Union.

The statedaim of the NAIC's new charge is to "consider and develop contingency regulatoryplans to continue to protect U.S. consumers and U.S. ceding companies from potentialadverse impact resulting from covered agreement negotiations."

The NAICwould not elaborate on what it meant by the so-called contingency plans.

The FederalInsurance Office at the U.S. Treasury Department and the U.S. Trade Representative'soffice are engaged in negotiations that could lead to a bilateral or covered agreementbetween the U.S. and the EU on reinsurance collateral as well as other cross-borderinsurance issues. An agreement could pre-empt some state insurance laws.

The potentialcovered agreement issue has been well-explored over the past year, at least, bythe NAIC. Former NAIC CEO Ben Nelson and NAIC legal staff met with outside lawyerson the subject, a review of an obtained copy of Nelson's report on his own work at the NAIC through June2015 shows. Sources add that the NAIC could be considering a lawsuit to stop a coveredagreement or to achieve other measures. The NAIC declined to comment on any suchplans.

The NAICadopted the new charge, to be handled by the Financial Condition Committee, at itsSpring National Meeting in New Orleans, held the first week in April. The issueis of such importance that it was on the agenda at the April 4 regulator-only CommissionersRoundtable during the meeting, according to a copy of that agenda.

In aMarch 28 memoto the Financial Condition Committee, Chair Eric Cioppa wrote: "While stateregulators have been promised direct and meaningful participation in the negotiations,the process and content of these negotiations will not be open and transparent toall regulators and stakeholders."

Cioppa,also Maine's insurance superintendent, continued that in light of those circumstancesand "the potential for state insurance laws and/or regulations to be impactedby these negotiations," he urged the committee to consider the new charge.

In November2015, Treasury and the USTR notified Congress, as required under the Dodd-FrankAct, that they intended to begin negotiating a covered agreement with the EU. Thefederal government's hope is to gain equivalency for U.S. insurers and reinsurersunder the EU's Solvency IIregime in the process. There has been at least one negotiating session so far thisyear, in Brussels.

However,NAIC President and Missouri Insurance Director John Huff has been vocal about thecovered agreement in recent public comments, and the NAIC positionis that the federal government has not shown that a covered agreement that pre-emptsstate laws is warranted.

He saidin March that a covered agreement is not required for the EU to deem the U.S. insurancesupervisory system equivalent under Solvency II and that the EU can grant the U.S.equivalency now.

Huffcalled upon the EU to actwithout such a covered agreement, in a speechMarch 17 at an insurance regulatory conference in Washington, D.C. Huff has reiteratedin Washington and New Orleans public comments that he plans to be in the room forthe negotiations.

Hufftold reporters during the NAIC meeting that the organization was promised "meaningfulparticipation," but that he would not term it as meaningful at this point.

Treasurydid not comment on the NAIC's plans.

The ReinsuranceAssociation of America said through its general counsel, Tracey Laws, that it isencouraged to see the NAIC engaging on the covered agreement process. The RAA wantsthe NAIC "to consider not only 'potentially adverse impacts,' but also potentialbenefits for the state insurance regulatory system and U.S.-based companies doingbusiness in the European Union," Laws stated.

Duringthe NAIC meeting in New Orleans, reinsurance interests tried to get the NAIC tomodify the language of the charge, but the NAIC told them it is comfortable thatthe language is broad enough to look at all aspects of a covered agreement, throwinginto question what exactly the group is planning, sources have noted.

NAICstaff pointed to future discussions once the group starts work on the new charge.