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State governors, Congress vie for Treasury's ear on covered agreement

Treasury Secretary Steven Mnuchin is getting calls to put the brakes on a bilateral insurance regulatory agreement with the European Union, at least until the administration provides additional details on some aspects of the deal.

Members of Congress, led by Housing and Insurance Subcommittee Chairman Sean Duffy, R-Wis., and the National Governors Association, led by NGA Economic Development and Commerce Committee Chair and Colorado Gov. John Hickenlooper, sent letters to Mnuchin on April 7 to express concerns that the agreement was overly ambiguous and could impede state regulatory principles.

House Financial Services Committee Republicans in their letter asked for assurance from Mnuchin and the United States Trade Representative's office that the EU would recognize the "soundness of the U.S. regulatory system" and that it would not exert group supervision authority over non-EU insurers without good reason.

Other points of clarification requested by the members of Congress include deference to the National Association of Insurance Commissioners' group capital calculation and state regulators' power to call for new measures for EU companies when collateral requirements are lifted under the terms of the deal. It is unclear if such language would change the nature of the agreement.

The state governors' letter was broader and argued that the covered agreement could be used to pre-empt state laws. The accord must be clarified before states "are forced to make changes" to existing insurance rules, the group said.

Meanwhile, several California Republicans, led by Rep. Ed Royce, wrote to Mnuchin in support of the agreement, saying it clears obstacles preventing the U.S. from competing overseas and affirms the strength of the state-based regulatory system.

The letters were sent during the final days of a 90-day congressional review period, which began Jan. 13. Once that period concludes, Treasury and the USTR can sign off on the arrangement if they so choose.

The letters came also as the NAIC gathered for its spring annual meeting, and as a delegation of British regulators concluded a weeklong visit with the House Financial Services Committee, the Treasury Department, Federal Reserve Board staff and various state insurance commissioners. Sources at the NAIC meeting said the U.K. regulators are concerned about post-Brexit collateral requirements for U.K. companies in the U.S. as any covered agreement with the EU would no longer apply to them. The hope is that the U.S. and the U.K. could forge their own deal, sources said. If the covered agreement is vulnerable to being killed or delayed, it increases the British regulators' concerns, the sources added.

The covered agreement process and resulting accord has been a major issue for the NAIC. Lack of certainty could make U.S. insurers vulnerable to continued regulatory hurdles in the EU and spur "perpetual renegotiation" of the agreement's terms, the trade group has said.

NAIC CEO Michael Consedine said the group does not want to "blow up" the covered agreement, and it is open to clarification coming in the form of side letters or written assurances from the Treasury Secretary.

Former NAIC CEO Ben Nelson said he will reach out to Mnuchin to push for a review of the covered agreement. Nelson, who is also a former U.S. senator, said the accord was completed too quickly and warned that imprecise language could open the U.S. up to possible retaliatory actions and negative interpretations for years. "Unless you have clarity, people are not going to know for sure what it means or what it should mean," he said at the NAIC conference.

The Treasury Department is not commenting on the covered agreement during its congressional review period.