NATIONAL CONFERENCE OF INSURANCE LEGISLATORS
INTERNATIONAL INSURANCE ISSUES COMMITTEE
NEW ORLEANS, LOUISIANA
NOVEMBER 17, 2000
DRAFT MINUTES

The National Conference of Insurance Legislators (NCOIL) International Insurance Issues Committee met at the Royal Sonesta Hotel in New Orleans, Louisiana, on Friday, November 17, 2000, at 1:30 p.m.

Rep. David Counts of Texas, Chair of the Committee, presided.

Members of the Committee present were:

Sen. Thomas Bozek, CT
Rep. Terry Parke, IL
Sen. Edward Oliver, MN
Spkr. Frank Wald, ND
Assem. Nancy Calhoun, NY
Sen. William J. Larkin Jr., NY
Rep. Kathleen Keenan, VT                       

Other legislators present were:

Sen. David Donley, AK
Rep. Steve Fontana, CT
Rep. Leslie Waters, FL
Rep. Charles Bannister, GA
Rep Craig Fry, IN
Rep. Michael Smith, IN
Rep. Robert Damron, KY
Sen. Joanne Emmons, MI
Rep. Alan Sanborn, MI
Rep. Gregory Davids, MN
Sen. Cal Larson, MN
Rep. Russell Gunn, MO
Rep. Chuck Surface, MO
Rep. Jay Eads, MS
Rep. George Keiser, ND
Sen. Leo Fraser, NH
Dep. Spkr. Clare Farragher, NJ
Sen. Carroll Leavell, NM
Sen. Neil Breslin, NY
Rep. David Evans, OH
Rep. Robert Netzley, OH
Rep. Dale Van Vyven, OH
Rep. Brian Kennedy, RI
Rep. Craig Eiland, TX
Rep. Maureen Dakin, VT
Rep. Virginia Milkey, VT
Rep. Carolyn Partridge, VT
Rep. Mark Young, VT
Del. Frank Angotti, WV
Sen. Joseph Minard, WV
Del. Frank Thompson, Jr., WV

           Also present were:

  Mr. Bob Mackin, Mackin & Company, NCOIL Executive Director
Ms. Susan Nolan, Mackin & Company, NCOIL Deputy Executive Director
Mr. Chad W. Underwood, NCOIL Director of Legislative Affairs and Education
Ms. Jenn O’Connor, NCOIL Director of Legislative Affairs and Education 
Ms. Alicia Bishop, NCOIL Legislative Assistant

MINUTES

            The Committee voted unanimously to approve, as submitted, the minutes of its July 7, 2000, meeting in Burlington, Vermont.

REPORT ON INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS ANNUAL MEETING

            At the request of the Chair, Mr. Doug Barnert of Barnert Associates updated legislators on the October 9 through 13 International Association of Insurance Supervisors (IAIS) Annual Meeting in Cape Town, South Africa.  Mr. Barnert said the IAIS adopted five new global standards, set principles relating to the supervision of insurance activities on the internet, adopted issues papers on solvency, solvency assessments and actuarial issues, and adopted a textbook to educate insurance regulators.

            Mr. Barnert said that in the coming year, the IAIS would work to establish new guidance procedures for international insurers, continue work on reinsurance issues and set up a database of reinsurers, complete a plan of implementation for solvency issues, and continue work in the areas of money laundering, financial crime and regulatory abuse.

            Mr. Barnert said the IAIS was moving toward a more open process by establishing a new “Observer Member” position.  He said Observer Members could attend general meetings and seminars, but would not have the right to vote.  He said the IAIS held a general session in Cape Town, during which Observer Members received presentations on topics of their choosing.

            Mr. Barnert said the IAIS elected Commissioner Hanley Clarke of West Virginia to his third two-year term as President.

UPDATE ON INTERNATIONAL ACCOUNTING STANDARDS PROGRESS

            At the request of the Chair, Mr. Barnert said the International Accounting Standards Committee (IASC) had completed its restructuring and would start on January 1, 2001 under new direction.  He said the new IASC Board would meet for the first time in April.

            Mr. Barnert said the IASC Steering Committee was still working on a draft statement of principles relating to international accounting standards.  He said a draft would be ready for discussion by mid-2001.

            Mr. Barnert said that once the IASC had completed a final draft, it would be circulated to every member jurisdiction for comment.  He said the IASC would give national regulatory agencies until August to comment.

            In response to a question from Mr. Mackin, Mr. Barnert said the IASC did not generally have open meetings.

FOUNDATION SPONSORED CONFERENCES IN LONDON AND BRUSSELS

            At the request of the Chair, Dep. Spkr. Farragher said five NCOIL legislators, including herself, met with international government, insurance and financial industry officials in London and Brussels from October 23 through 26, 2000.  She said that Sen. Larkin, Sen. Oliver, Rep. Counts, Spkr. Wald, and Mr. Mackin and Ms. Nolan of Mackin & Company participated in the meeting.  She said that three points were addressed: present state trust fund requirements discriminated against European reinsurers; the U.S. was too slow in lowering its regulatory barriers; and the EU welcomed NCOIL participation in future discussions.

            Dep. Spkr. Farragher said that European insurers were presently considering how they might educate U.S. state legislators on the issue of trust fund requirements.  She said that, as a first step, Mr. David Matcham of the International Underwriting Association (IUA) would provide legislators with more information.

            Dep. Spkr. Farragher said that European government officials were not happy with the progress of globalization and the slow pace in the lowering of U.S. regulatory barriers to one-stop shopping for licenses and for policy form and rate approval.  She said the officials were pleased, however, with the progress to date on producer licensing legislation and the enactment of commercial lines deregulation.

            Dep. Spkr. Farragher said that European officials and insurers sought more direct exchanges of information with state legislators in the U.S.  She said that European officials were beginning to review state laws and analyze the differences between EU law and specific state laws.  She said that Europeans were looking for equal treatment even though they didn’t necessarily have comparable regulations.

            Dep. Spkr. Farragher said that NCOIL received a letter from the Comite Europeen Des Assurances (CEA) regarding NCOIL participation in the London and Brussels meetings.  She said the Acting Secretary General, Jacques Leglu, was very receptive to the meetings and looked forward to future meetings with representatives of NCOIL.

INTERNATIONAL REINSURANCE ISSUES

            At the request of the Chair, Mr. David Matcham of the International Underwriting Association (IUA), based in London, UK, provided legislators with information on reinsurance concerns that his member companies had relating to U.S. regulation.  He said the Financial Services Authority regulated UK banking, securities, pensions and insurance markets.

            Mr. Matcham said that U.S. companies comprised at least one-third of the UK reinsurance business.  He said that reinsurance and commercial lines products were the most common lines of insurance business conducted between the two countries.  He said that due to the large amount of business UK insurers did with the U.S., it was imperative that they followed and understood U.S. legislative proposals relating to insurance. 

Mr. Matcham said that in order for an U.S. insurer to take credit for its reinsurance recoveries from an UK or European reinsurer, it must receive a letter of credit rating or have a multi-beneficiary trust fund in place.  He said the alien reinsurer must set up a trust fund in the U.S. equal to 100 percent of the company’s gross liabilities plus an additional buffer of $20 million. 

            Mr. Matcham said that reinsurance was a truly international business.  He said that half of U.S. policies are ceded to overseas reinsurers.  He said the formation of the IAIS, the convergence of financial services worldwide, and the development of more credible accounting standards had created a new international environment.  Mr. Matcham said that European insurers would like to work towards mutual recognition.  He said that as a first step, however, it would be fair to reduce the required level of trust fund deposits to 50 percent

            At the request of the Chair, Ms. Marsha Cohen of the Reinsurance Association of America (RAA) said the RAA had worked consistently with the IUA.  She said the NAIC had a task force to deal with the reinsurance issues.  She said that U.S. regulations require a reinsurer to be licensed, accredited or place collateral, i.e. letters of credit or trust fund, in order to reinsure an U.S. insurer.  She said that in the U.S. there were many regulations that companies had to abide by which EU companies did not because they were not domestically domiciled.  She said that state regulators might take away a domestic company’s license and capture its assets in the event of insolvency.  She said this was not the case with an international company and, therefore, the underlying rationale for requiring a trust fund of international reinsurers was appropriate.

            Ms. Cohen said that each country had different accounting standards and that until uniform international accounting and solvency standards were in place, there should be continued concern.

In response to a question from Rep. Keiser, Ms. Cohen said the U.S. industry and consumers depended on international reinsurers for their reinsurance business.  She said they depended on assets and funds being available to cover any potential losses.  She said for security reasons, it would not be appropriate to reduce the level of funding from 100 percent to 50 percent.

Mr. Matcham said that EU insurers and reinsurers who were purchasing reinsurance from EU companies were sophisticated buyers and therefore should be able to take into account a company’s financial soundness.  He said the UK did not have a trust fund requirement for U.S. reinsurers who did business in the UK.  He said that by reducing the level of trust fund required in the U.S. to 50 percent, it would encourage more international companies to post a trust fund rather than work under a letter of credit rating.

Ms. Cohen said that the NAIC had issued comments in the past stating that the requirements for non-U.S. domestics were no more onerous than those regulations placed on U.S. companies.  She said this was still a new issue and deserved additional review.

Rep. Counts recommended that NCOIL take the issue up again at the 2001 NCOIL Spring Meeting in Hilton Head.  He said that a general session would allow for all sides to present their perspectives.  The Committee unanimously agreed with the recommendation. 

            At the request of the Chair, Ms. Nolan of Mackin & Company reported on a Comite Europeen Des Assurances (CEA) letter Dep. Spkr. Farragher had spoken of earlier.  She said the letter stated the “CEA will continue to insist that a NCOIL presence is required for the next round of negotiations involving insurance issues.”

            Ms. Nolan said the CEA had requested that representatives of the National Association of Insurance Commissioners (NAIC), as well as NCOIL, should participate as part of the U.S. delegation whenever the Transatlantic Economic Partnership (TEP) meets to discuss insurance issues.

COMMITTEE CHARGES

            The Committee voted unanimously to accept the proposed Committee charges for 2001.  Rep. Counts said the Committee would monitor and consider an NCOIL position on international reinsurance issues.  He said the Committee would monitor IAIS meetings, EU developments relating to the business of insurance, and international solvency and uniform accounting standards progress.

ADJOURNMENT

            There being no further business before the Committee, the Chair adjourned the meeting at 2:10 p.m.

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