[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                      INSURANCE OVERSIGHT: POLICY

                    IMPLICATIONS FOR U.S. CONSUMERS,

                      BUSINESSES, AND JOBS, PART 2

=======================================================================



                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INSURANCE, HOUSING AND

                         COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 25, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-77



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

                   Larry C. Lavender, Chief of Staff
      Subcommittee on Insurance, Housing and Community Opportunity

                    JUDY BIGGERT, Illinois, Chairman

ROBERT HURT, Virginia, Vice          LUIS V. GUTIERREZ, Illinois, 
    Chairman                             Ranking Member
GARY G. MILLER, California           MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia  NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia        MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin             BRAD SHERMAN, California
ROBERT J. DOLD, Illinois             MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 25, 2011.............................................     1
Appendix:
    October 25, 2011.............................................    23

                               WITNESSES
                       Tuesday, October 25, 2011

McRaith, Hon. Michael T., Director, Federal Insurance Office, 
  U.S. Department of the Treasury................................     5

                                APPENDIX

Prepared statements:
    McRaith, Hon. Michael T......................................    24


                      INSURANCE OVERSIGHT: POLICY



                    IMPLICATIONS FOR U.S. CONSUMERS,


                      BUSINESSES, AND JOBS, PART 2

                              ----------                              


                       Tuesday, October 25, 2011

             U.S. House of Representatives,
                 Subcommittee on Insurance, Housing
                         and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:02 p.m., in 
room 2128, Rayburn House Office Building, Hon. Judy Biggert 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Biggert, Hurt, 
Westmoreland, Duffy, Dold, Stivers; Gutierrez, Velazquez, 
Cleaver, Sherman, and Capuano.
    Also present: Representatives Royce and Green.
    Chairwoman Biggert. This hearing of the Subcommittee on 
Insurance, Housing and Community Opportunity will come to 
order, and we will begin with opening statements. I recognize 
myself for 4 minutes.
    Good afternoon and welcome to this hearing, the second in a 
series, entitled, ``Insurance Oversight: Policy Implications 
for U.S. Consumers, Businesses, and Jobs.''
    I welcome today's witness, Mr. Michael McRaith, Director of 
the Federal Insurance Office at the Department of the Treasury. 
In his new capacity--this is the Director's first appearance 
before any congressional committee, and we are so happy that he 
is here. He served as the Director of the Illinois Department 
of Insurance and as part of the National Association of 
Insurance Commissioners leadership team. We look forward to the 
Director describing his initial activities and future plans to 
carry out his duties as authorized by the Dodd-Frank Act.
    The new Federal Insurance Office, also called FIO, has an 
important but limited role, and this hearing will give us an 
opportunity to discuss ways to keep the U.S. insurance market 
free of any unnecessary regulatory burden and internationally 
competitive.
    In addition, much like our first insurance oversight 
hearing in July, we will continue to examine how provisions in 
the Dodd-Frank and other recent domestic and international 
initiatives affect the insurance industry. For over 150 years, 
the State-based system of insurance regulation has worked and 
endured, even during turbulent economic times, allowing the 
U.S. insurance industry to become a growing and vibrant source 
of financial security for millions of Americans. That financial 
security includes providing 2.3 million wage and salaried jobs.
    Congress occasionally reviews the State-based system to 
ensure uniformity and effectiveness. The McCarran-Ferguson Act 
of 1945 maintained the States' regulatory authority over 
insurance unless a Federal law expressly provides otherwise, 
such as flood and terrorism insurance. However, for U.S. 
insurers, the Dodd-Frank Act unnecessarily upset this well-
functioning and proven system of regulation.
    In July, we heard from a spectrum of witnesses that the 
Dodd-Frank Act as well as international regulatory initiatives 
have created great uncertainty for U.S. companies that are in 
the business of insurance. Our U.S. insurers are holding their 
breath in anticipation of being subject to new regulations 
issued by Federal bank regulators, higher capital standards, 
restrictions on investment, payments to a new Federal bailout 
fund, and to what end? As a result, insurers have told me that 
they are not expanding their companies and creating jobs, 
consumer costs may rise, and they may become less competitive 
abroad. These are very serious and real results of uncertainty 
created by Washington.
    I hope that today's hearing can shed light on how the FIO 
can help provide guidance to regulators and much-needed clarity 
to our U.S. insurers. It is my hope that today's hearing also 
will reveal how the FIO Director will use his office to help 
our insurers remain internationally competitive.
    With that, I yield to the ranking member, Mr. Gutierrez 
from Illinois, for his opening statement.
    Mr. Gutierrez. Thank you so much.
    Thank you, Madam Chairwoman, and thank you, Director 
McRaith, for joining us this afternoon to provide an update on 
the important work that you have started at the Federal 
Insurance Office, or FIO.
    When the subcommittee met in July to discuss the Federal 
Government's role in insurance policy, almost every witness 
conveyed one clear message, that you were going to be very 
important, vitally important. Even though our State regulators 
and legislators have been very effective, there is a gap at the 
Federal level in our understanding of the insurance industry 
and our ability to coordinate domestic and international 
insurance policy. The FIO attempts to fix this by working with 
State officials to improve the regulatory environment, protect 
U.S. interests internationally, and prevent systemic risks and 
failures related to the insurance industry.
    Some of my Republican colleagues have characterized the FIO 
as a regulatory threat and have attacked it just like they have 
attacked the Consumer Financial Protection Bureau. They have 
these ``Chicken Little'' theories, constantly warning us that 
the regulatory sky is going to fall on us if we let the FIO 
move forward.
    I want to remind my colleagues that we were very careful to 
define the FIO in such a way that limits any negative impact on 
the industry and keeps it focused on necessary interstate 
coordination, data gathering, and monitoring. I understand that 
my colleagues on the other side of the aisle are particularly 
concerned with the role FIO plays on the Financial Stability 
Oversight Council, or FSOC, and the Director's ability to 
recommend the FSOC consider a potentially risky insurance 
company for higher prudential standards. This policy 
acknowledges that not all insurance companies have the same 
business model, and that the AIGs of the world are 
interconnected, even that their failure would have a serious 
impact on financial markets. As I understand it, the FSOC is 
developing strict criteria for this designation, which I find 
appropriate.
    Unfortunately, some seem to agree with the insurance 
industry and say that any regulation is just no regulation to 
many. How high do we expect to set the bar in order for an 
insurance company to be considered risky so that we can have 
additional oversight to keep it from bringing down our entire 
economy? No matter where we end on this question, some will say 
we set the bar too high, others will say we set it too low. 
And, fortunately, the FIO and Director McRaith will provide 
specific insurance expertise to help State and Federal 
regulators reach an effective, workable standard.
    I look forward to hearing about how the FIO is starting to 
fulfill its mission to make insurance regulation in this 
country better and more efficient, not more cumbersome. In 
that, I agree with the Majority. I think this hearing will be 
an important reminder of the real value that the FIO adds to 
the U.S. insurance, ultimately making it more stable and more 
competitive, and I thank the gentlelady from Illinois, our 
chairwoman, once again.
    Chairwoman Biggert. Thank you, Mr. Gutierrez.
    I now yield 1 minute to the gentleman from Virginia, our 
vice chairman, Mr. Hurt.
    Mr. Hurt. Thank you, Madam Chairwoman.
    First, I would like to welcome Director McRaith to our 
subcommittee. I appreciate your appearance here, and your 
willingness to have a dialogue with us about what you see for 
the future of this newly created Federal Insurance Office.
    Today, the subcommittee continues its important oversight 
of the insurance industry and the impact of Dodd-Frank on the 
manner in which insurance is regulated. Dodd-Frank created the 
FIO to represent the interests of insurers in the context of 
international regulatory negotiations as well as advise the 
FSOC on the risks associated with the insurance industry.
    In our last hearing on these issues, I asked witnesses 
whether the FIO would signify an expansion of Federal power and 
bureaucracy in the arena of insurance regulation. With the 
Federal Government's nose now under the tent of insurers, so to 
speak, it is my hope that the FIO will not engage in mission 
creep and instead adhere to the limited mission that Congress 
intended it to serve. With our Nation over $14.5 trillion in 
debt, my constituents, the citizens of Virginia's 5th District, 
know that we cannot afford any new duplicative regulations or 
bureaucracy. Excessive and unnecessary regulation of insurance 
would only restrict consumer choice and hinder the growth of 
free and open insurance markets.
    Again, I want to thank the Chair for holding this hearing 
today. I look forward to the testimony, and I yield back the 
balance of my time.
    Chairwoman Biggert. Thank you, Mr. Hurt.
    The gentleman from Illinois, Mr. Dold, is recognized for 3 
minutes.
    Mr. Dold. Thank you, Madam Chairwoman, and I certainly want 
to thank you for holding this important hearing.
    Director McRaith, thank you so much for being here and for 
your time.
    As we all know, the insurance industry is a large and 
critical component of our financial services industry and of 
our economy generally. The insurance industry generally employs 
well over 2 million Americans with stable and well-paying 
private-sector jobs.
    Our insurance industry is also the source of many billions 
of dollars of private-sector investment capital every year. 
These investments help other businesses get started, expand, 
and create even more good, stable, well-paying private-sector 
jobs in all kinds of various industries. And while providing 
these direct and indirect jobs and other economic benefits, our 
insurance industry provides many millions of American 
policyholders with peace of mind, security, and compensation in 
difficult, unfortunate, and oftentimes tragic circumstances.
    But along with all of these positive factors, the insurance 
industry has some challenges that Congress can and should 
address.
    The first and most urgent challenge is getting Congress to 
pass responsible, long-term National Flood Insurance Program 
reauthorization. Under Chairwoman Biggert's leadership, the 
House has overwhelmingly passed that kind of legislation with 
over 400 votes. We are all looking forward to a prompt Senate 
passage and the President signing this important legislation.
    But now we have an equally important obligation, to 
carefully examine how Congress can help modernize the insurance 
industry's regulatory framework while identifying and 
supporting helpful industry-related initiatives. This raises 
important questions about the interaction between Federal, 
State, and other regulators, the interaction of regulations 
among the different States, and how our domestic regulations in 
trade agreements compare to those of foreign nations in an 
interconnected global marketplace.
    In the end, our objective here is to create the conditions 
that will maximize private-sector job growth, economic 
prosperity, and global competitiveness, while also ensuring 
that consumers are adequately protected and have access to a 
broad range of affordable insurance products. I look forward to 
hearing from Mr. McRaith about how we can achieve these 
objectives.
    I won't have time to ask all of my questions during the 
allotted period, so I will be submitting some written 
questions, just to give you a heads-up on that. But my 
questions will include things about the Volcker Rule, the SIFI 
designations, regulatory uniformity and modernization, and the 
NAIC's regulatory role.
    Given this industry's vital importance to the 
policyholders, American jobs, and the American economy 
generally, we need to make sure that our legislation and 
regulatory framework aren't going to have negative, unintended 
consequences, aren't going to impose undue costs on insurers 
and their policyholders, and aren't going to unnecessarily 
limit our economic growth and our job growth as well.
    So, with that in mind, I thank you in advance both for your 
testimony here today and for your responses to the written 
questions.
    And, with that, Madam Chairwoman, I yield back.
    Chairwoman Biggert. Thank you, Mr. Dold.
    Without objection, all Members' opening statements will be 
made a part of the record.
    Now, we will hear from our esteemed witness, the Honorable 
Michael McRaith, Director, Federal Insurance Office, U.S. 
Department of the Treasury. You will be recognized for 5 
minutes, and then the Members will have 5 minutes each to ask 
their questions.

 STATEMENT OF THE HONORABLE MICHAEL MCRAITH, DIRECTOR, FEDERAL 
       INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

    Mr. McRaith. Chairwoman Biggert, Ranking Member Gutierrez, 
and members of the subcommittee, thank you for inviting me to 
testify today. I am Michael McRaith, Director of the Federal 
Insurance Office in Treasury.
    The Dodd-Frank Act created the Federal Insurance Office, or 
FIO, and, among other things, gave it the authority to monitor 
the insurance industry, to monitor the accessibility and 
affordability of insurance to underserved communities, to 
develop and coordinate Federal policy on international 
insurance regulatory matters, and to represent the United 
States at the International Association of Insurance 
Supervisors. In a role that will continue to develop, FIO is 
now a central point of contact for insurance supervisors from 
around the world. Our leadership will provide needed clarity on 
relevant U.S. positions.
    On October 1st, FIO became a full member of the 
International Association of Insurance Supervisors (IAIS), 
marking the first time the United States Government has a voice 
in the coordination and development of international insurance 
regulatory standards. With the IAIS moving to designate 
globally significant insurers, FIO involvement has arrived at a 
critical moment. The IAIS is also developing a common framework 
for the supervision of internationally active insurance groups, 
a project with which the FIO will be increasingly engaged. And 
with the EU and the U.S. discussing regulatory equivalence, the 
FIO will work with State insurance regulators and our EU 
counterparts so that the regulatory systems of one country or 
continent do not favor or disadvantage insurers based 
elsewhere. In every forum, our objective shall be to shape 
international consensus where appropriate on issues important 
to the United States.
    FIO is authorized to gather information, as required by the 
Dodd-Frank Act. We will first seek data from public sources, a 
Federal or State regulator, or the Office of Financial Research 
before seeking information from an insurer. As we have to date, 
FIO expects to work closely with regulators when data is 
needed.
    The Financial Stability Oversight Council was created to, 
among other things, identify and respond to threats to 
financial system stability. FIO is an advisory member of the 
Council, and I look forward to working with Roy Woodall, the 
Council's independent insurance expert, and Director John Huff 
of Missouri, the State insurance commissioner. With Mr. 
Woodall's recent confirmation, the Council now benefits from 
the input of three insurance experts.
    FIO has made progress in other important ways. In May, we 
announced the formation of a 15-member Federal Advisory 
Committee on Insurance, approximately one-half of whom will be 
State insurance regulators. Applicants include many leaders 
from across the industry spectrum. We are completing the 
evaluation process and hope soon to announce our appointments.
    FIO is preparing a study and report on how to modernize and 
improve the system of insurance regulation in the United 
States. A Federal Register notice seeking comment was published 
on October 17th, and the comment period closes December 16th. 
We welcome comments on all relevant topics.
    We continue to build FIO to expand resources and expertise. 
This week, four positions were posted at USAjobs.gov as part of 
our effort to construct a strong and talented team.
    To be sure, FIO is not a regulator. That remains the 
province of the States. In June, I concluded more than 6 years 
as the Illinois insurance commissioner and have great respect 
for the work of State regulators. State regulators have broad 
daily responsibilities including solvency oversight, product 
form approval, consumer complaints, and producer licensing.
    FIO is committed to establishing a collaborative 
relationship with State insurance regulators, and we have 
worked to develop the custom and practice of interaction with 
the States that will serve the best interests of the U.S. 
economy, the insurance industry, and our insurance consumers.
    Insurance is an enormous, multifaceted industry subject to 
complicated regulatory oversight. Chairwoman Biggert, I affirm 
our commitment to work with and to support Congress, this 
committee, and others as you seek analyses or perspectives on 
insurance topics of local, national, or international interest.
    Thank you for your attention. I look forward to your 
questions.
    [The prepared statement of Mr. McRaith can be found on page 
24 of the appendix.]
    Chairwoman Biggert. Thank you for your testimony.
    Without objection, your written statement will be made a 
part of the record. With that, I will recognize Members for 5 
minutes to ask questions. I yield myself 5 minutes.
    In your written testimony, you state that the FIO will 
consult and work closely with State insurance departments which 
remain the functional regulators over the business of insurance 
as we develop Federal insurance policy on insurance matters. I 
know that you just said that FIO was not a regulator, but would 
you repeat that and give us some more insight into why it is 
not a regulator?
    Mr. McRaith. Sure. We should start, of course, with the 
Dodd-Frank Act itself, which is explicit that the Federal 
Insurance Office is not a regulator, it is not a supervisor. 
The authority, the day-to-day responsibility to regulate the 
insurance sector remains the province of the States.
    Chairwoman Biggert. Thank you.
    As our country struggles with a slow economic recovery, and 
national unemployment is 9.1 percent, do you think that 
Congress and the Federal agencies or States should take any 
action to foster our insurance markets or are they functioning 
well?
    Mr. McRaith. The measurement of a well-functioning 
insurance market is subjective. Depending on which economist 
you ask, which consumer you ask, which company you ask, you are 
likely to receive many different viewpoints.
    For example, the property and casualty market, by and 
large, is extremely competitive. Those of us who watch sporting 
events see the competition for personal lines' auto coverage, 
for example, and we know how competitive many of those lines of 
insurance are.
    Having said that, we should evaluate and continue to 
evaluate all aspects of the insurance regulatory system, the 
insurance sector, and evaluate whether there is a better way to 
do what we are doing now, a better way to protect consumers, a 
better way to provide affordable, accessible coverage, a better 
way to allow the insurance sector based in the United States to 
compete internationally.
    Chairwoman Biggert. I am sure that, like me, you have heard 
from our U.S. insurers that they face great regulatory 
uncertainty, especially as it relates to the Dodd-Frank Act 
provisions that could lead to insurers being regulated by 
Federal bank regulators and being subject to higher capital 
standards and restrictions on investment and payments to a new 
Federal bailout fund. What are your plans in addressing these 
uncertainties?
    Mr. McRaith. I would clarify that those uncertainties at 
this point are largely hypothetical. There is no definition as 
to what any enhanced supervisory standard might be with respect 
to an insurance company. We do know that the FSOC has recently 
published a proposed rule and guidance that gives some clarity 
on how a company will be designated. That, of course, would be 
the first step before any enhanced supervisory standards are 
applied.
    Chairwoman Biggert. I think the one thing about the--
    Mr. McRaith. Just to finish that thought, Madam Chairwoman.
    Chairwoman Biggert. Okay, sure.
    Mr. McRaith. And I apologize. As a member of the Financial 
Stability Oversight Council, I will work with Mr. Woodall, as I 
mentioned, the independent insurance expert on the Council, and 
John Huff, the State insurance commissioner, and we will do our 
best to inform the Council and the members of the Council as to 
the operations of the insurance sector, why it operates or 
behaves in a certain way in any given circumstance.
    Chairwoman Biggert. Thank you.
    I think one of the things that this committee was concerned 
about and one of the things that the industry was concerned 
about was the lack of having you and Mr. Woodall at the table 
when FSOC was making policy, and I--was there anything, have 
you found, that transpired that would affect the insurance when 
you weren't there and could be corrected or should be 
corrected?
    Mr. McRaith. I think it is notable that the Council 
published the proposed rule and guidance in 2010. There were 
many comments, including from the insurance sector, asking for 
more clarity, and just recently the Council re-proposed the 
rule and guidance with the benefit of insights not only from 
Director Huff but also from me as the FIO Director, and Mr. 
Woodall had been in his position for a few weeks prior to the 
publication of that proposed rule and guidance.
    Chairwoman Biggert. So you think that there wasn't anything 
that transpired that you would like to undo?
    Mr. McRaith. No, I have not seen anything like that, Madam 
Chairwoman.
    Chairwoman Biggert. Okay. Thank you.
    My time has expired, and I recognize the ranking member, 
Mr. Gutierrez, for 5 minutes.
    Mr. Gutierrez. Thank you very much.
    Welcome, Mr. McRaith. We are happy to have you here. I am 
happy we cleared up the regulatory issue, although we were very 
explicit in the Dodd-Frank bill, as you have repeated here 
again, in terms of the regulatory.
    I guess the first thing on regulatory--back in Illinois, I 
guess the gas company would charge whatever they want. I am 
sure they are saying regulation gets in the way of their 
profit. The electric company would say the same thing. I guess 
a slum landlord would say the same thing about regulatory 
issues when it comes to certain standards that you have to give 
housing. I could just go on and on and start thinking about 
people who would love not to have any regulation. I guess the 
guys at Worldcom, too, a little regulation got in their way, 
along with Enron, because they kind of created their own 
regulations.
    So I just want to talk about why is it that we have the 
FIO. Does it have anything to do with regulations or lack of 
regulations in the past, and what is your role in the future?
    Mr. McRaith. Thank you, Congressman, for your kind words. I 
am happy to be here to work with you in this capacity.
    The FIO will monitor the industry, attempt to serve the 
Financial Stability Oversight Council and other aspects of the 
Federal Government, including Congress and this committee, by 
providing insurance expertise, by providing a solid, objective, 
reliable understanding of the operations of the sector, and the 
impact on consumers. In that, we are also required to monitor 
the affordability and accessibility of insurance to 
traditionally underserved communities; we will be working with 
State insurance regulators.
    Mr. Gutierrez. But that might cost the insurance industry 
money and be regulatory, wouldn't it, if you have to monitor 
them? It might cost money to make sure that poor people can get 
car insurance and underserved communities might be able to--
    Mr. McRaith. I think that--
    Mr. Gutierrez. Not that I mind, because I think everybody 
should be served, just to make that point.
    Mr. McRaith. I think the word ``monitor'' is an important 
word that we are working to define as we move forward. Our 
objective is to be faithful--
    Mr. Gutierrez. Then let me ask you the question, who 
monitored and regulated AIG at the Federal level before its 
collapse and subsequent bailout by the Federal Government?
    Mr. McRaith. So AIG had 247 different operating companies. 
At the holding company level, it was regulated by the Office of 
Thrift Supervision.
    Mr. Gutierrez. Okay, and so were they doing a very good job 
of watching them? Did they ever warn them? Did they tell them, 
you shouldn't do this? Did they tell them about the credit 
swaps? Did they tell them about the potential that they had for 
crippling our financial markets in the United States? Were 
there any warnings?
    Mr. McRaith. I think Congress and the country have 
addressed that question by passing the Dodd-Frank Act.
    Mr. Gutierrez. So the answer is no?
    Mr. McRaith. I think it is clear that AIG at the holding 
company level did have a number of deficiencies, and many would 
argue that it was not properly supervised.
    Mr. Gutierrez. Because, basically, insurance has always 
been regulated at the State level, hasn't it?
    Mr. McRaith. That is correct.
    Mr. Gutierrez. And it really hasn't been regulated at the 
Federal level?
    Mr. McRaith. That is correct.
    Mr. Gutierrez. Wouldn't you say that insurance companies 
have not been monitored and regulated at the Federal level, 
though, in the same way a bank or a savings and loan is 
regulated and monitored at the Federal level?
    Mr. McRaith. I would say that the Federal Insurance Office 
marks the first time within the Federal Government that there 
is an office dedicated to monitoring the insurance industry.
    Mr. Gutierrez. So it would be fair to say that the creation 
of the FIO gives the first monitoring level to insurance 
companies at the Federal level?
    Mr. McRaith. It is fair to say that we are the first office 
in the Federal Government created with the explicit statutory 
responsibility--
    Mr. Gutierrez. So are you watching out to make sure AIG 
doesn't go adrift once again?
    Mr. McRaith. We are absolutely engaged with the Financial 
Stability Oversight Council. One of our core objectives, of 
course, is to identify regulatory gaps, where are there 
potential inadequacies in our regulatory system, to support the 
efforts of the Council, which has the objective of preserving 
and enhancing financial system stability.
    Mr. Gutierrez. I want to thank you.
    Let me just suggest to you, since you are not a regulator 
and you are a monitor, if you monitor AIG, could you call me 
right away so we can tell the world about the pending disaster 
in case they come once again to cripple our economic system?
    Thank you so much.
    Mr. McRaith. Thank you.
    Chairwoman Biggert. Thank you.
    The gentleman from Virginia is recognized for 5 minutes.
    Mr. Hurt. Thank you, Madam Chairwoman.
    Just to clarify, based on the last line of good 
questioning, it is my understanding that the FIO is not going 
to be looking at holding companies like AIG. You will be 
looking specifically at insurance companies; is that right?
    Mr. McRaith. If that is--
    Mr. Hurt. Or insurance-related business.
    Mr. McRaith. Excuse me?
    Mr. Hurt. Insurance business.
    Mr. McRaith. The statutory language, Congressman, is that 
the Federal Insurance Office will monitor the insurance 
industry, including identifying gaps in the regulatory system 
that may contribute to or threaten financial system stability.
    Mr. Hurt. But just so we don't get confused and we remain 
focused on trying to get at the issues that we want to get at, 
honestly, in an effective way, it is important to note--and 
this is my recollection--but at the end of the day, the 
insurance business at AIG was not the problem. It had to do 
with its holdings and derivatives?
    Mr. McRaith. It is absolutely correct that the FIO will not 
be regulating financial holding companies.
    Mr. Hurt. Okay.
    I have the same concern I think the Chair expressed, that 
at a time when we have 9.1 percent unemployment--I come from a 
rural southern Virginia district. We have 20 percent 
unemployment in some parts of my district. We are borrowing 40 
cents on every dollar. So I think that no one here--or I can't 
speak for anyone else, but I will say for myself, I am not here 
to say that we don't need any regulations. I am not saying that 
at all. But what I am saying is that when we do know that 
regulations cost money and they cost--and that money translates 
to jobs, I think we need to be aware of that.
    I think we also need to be aware of the fact that the 
government is borrowing 40 cents on every dollar it spends and 
therefore has fewer resources to do proper regulation, just to 
do a proper job.
    So I think that as we look at your role going forward, we 
need to keep those things in mind, and the two questions that I 
have really relate to what I said in my opening statement, but 
the first is on data collection. Can you talk a little bit 
about what you think that you will be able to do without 
requiring additional burdens on the private sector and be able 
to get from regulators?
    And then, what is it that you contemplate, if you can tell 
us, will have to be obtained over and above and create new and 
additional burdens that I am sure the companies will want to 
provide to you and be cooperative, but, at the same time, these 
are burdens, and let's be clear.
    Could you talk just specifically about that? And then, I 
have one other question.
    Mr. McRaith. Sure. Congressman, the Dodd-Frank Act requires 
us to seek, request, obtain information from publicly available 
records, from State or Federal regulators, from the Office of 
Financial Research, before we ever ask an industry participant.
    Mr. Hurt. Okay, so what does that mean practically? Do you 
know enough yet to know whether or not that means that there 
will be a great deal of volume that you will have to ask for 
that won't currently be provided through the regulators?
    Mr. McRaith. As you have heard today, I spent more than 6 
years as the insurance commissioner in Illinois. I am very well 
versed on the extensive reporting that insurance companies are 
required to do on a quarterly or annual basis to the State 
regulators. That information is then compiled through the 
National Association of Insurance Commissioners.
    At this point, Congressman, I can tell you that we have not 
needed information beyond what the regulators have already 
collected. Having said that, it would be--and I hope you 
understand I can't predict all of the information we will need 
in the future.
    Mr. Hurt. Of course.
    Mr. McRaith. But, again, our statutory obligation we intend 
to honor both in the spirit and the letter of the law. We will 
always pursue the information we need from a Federal agency or 
publicly available source, and only if it is unavailable at 
that point would we ask the industry for anything.
    Mr. Hurt. Thank you. It looks like my--I don't have time 
for another question, so I will yield back. Thank you.
    Chairwoman Biggert. Thank you.
    The gentlelady from New York, Ms. Velazquez, is recognized 
for 5 minutes.
    Ms. Velazquez. Thank you, Madam Chairwoman.
    Good afternoon. Some experts are concerned that data-
gathering activities of the FIO will impose duplicative 
requirements on insurers, ultimately resulting in higher costs 
for consumers and businesses. How does your office plan to 
mitigate the cost of data gathering?
    Mr. McRaith. To be clear, the statute requires that the 
Federal Insurance Office first request, seek, obtain 
information from a public source or from a State or Federal 
agency or from the Office of Financial Research before asking 
the industry for anything. I know very well what data that 
companies are required to produce, and report every year to 
State insurance regulators. To date, we have not needed data 
beyond what is already reported by the companies to the States.
    So to get to your question, because we are obligated to ask 
State regulators for information first or Federal regulators, 
whichever, we will never ask a company for information that 
they have already provided to another regulator. The 
possibility of a duplicative request, therefore, is not--it is, 
frankly, not possible.
    Ms. Velazquez. Nor should costs be passed on to individuals 
or businesses?
    Mr. McRaith. That is correct.
    Ms. Velazquez. One function of the Office of Financial 
Research is to make data available to the general public to 
increase transparency of the financial industry. Can you tell 
us what benefits we should expect from increased transparency 
of the insurance industry?
    Mr. McRaith. Much of the information that is collected and 
is company specific, if it is publicly available, that 
information may help this committee, may help Congress, may 
help the public understand what the financial status is of the 
company in which we are interested, and what the financial 
status is of the industry as a whole.
    Ms. Velazquez. Even after passage of the Dodd-Frank Act, 
State regulators remain solely responsible for consumer 
protection in insurance matters. In your opinion, should the 
CFPB assume part of this responsibility to ensure uniformity 
and a level playing field, and how can the CFPB assist States 
in these efforts?
    Mr. McRaith. The CFPB has explicit statutory authority and 
limitations. I would encourage you, Congresswoman, 
respectfully, to reach out to that agency to ask how they can 
be helpful in that regard. It would be inappropriate for me to 
comment at this time.
    Ms. Velazquez. Okay. Thank you.
    Chairwoman Biggert. The gentlelady yields back.
    The gentleman from Illinois, Mr. Dold, is recognized for 5 
minutes.
    Mr. Dold. Thank you, Madam Chairwoman.
    Director McRaith, as you know, the Volcker Rule prohibits 
or places restrictions on certain types of financial activities 
deemed high risk or that create potential for a high exposure 
to taxpayer losses. Insurance companies that own or operate an 
FDIC-insured thrift institution are covered entities and 
therefore must adhere to certain restrictions mandated by this 
rule.
    Everyone recognizes the Dodd-Frank statutory exemption 
which would allow insurers to continue proprietary trading 
activities in their general accounts. This shows that 
legislators and agencies recognize that investing for insurance 
companies' general account should be permitted, as these 
investments are solely for the general account and are 
rigorously regulated by State insurance departments.
    Although Dodd-Frank provided this proprietary trading 
exemption for insurers with small thrifts, there is an open 
question as to their ability to continue investing in private 
equity and hedge funds for their general accounts. Currently, 
many insurance companies invest in private equity long term to 
match the lives of their beneficiaries. These investments are 
not short-term or quick investments. They are along the lines 
of 10 to 15 years. Additionally, they are well regulated by the 
State insurance departments, as you are well aware.
    As the FIO Director, one of your principal functions is to 
identify issues or gaps in insurance regulations. Based on your 
expertise and experience in State insurance regulation, do you 
see any reason to prohibit these types of investments?
    Mr. McRaith. Congressman, I am very familiar with the 
operations of the industry and individual companies within the 
industry, including those within your home State, and my home 
State as well.
    I am also aware that there are a couple of rules that have 
recently been proposed on this subject matter. The Federal 
Reserve, the OCC, and the FDIC proposed rules, and the comment 
period expires or closes January 12th. The FCC proposed a rule 
on this subject matter that closes January 13th. I think the 
CFTC has a rule on this subject matter that is forthcoming. I 
encourage all interested parties, including the insurance 
industry, to submit comments. I would prefer that those 
agencies directly involved with the development of that rule 
hear and develop their own rules on that.
    Mr. Dold. You understand my concern. You just named several 
different agencies that are all trying to weigh in on this, and 
the opportunity to have more confusion and uncertainty is 
certainly significant. So would you rank over them in terms of 
what an insurance company could and could not do or would you 
have to--will we have conflicting potential rules out there?
    Mr. McRaith. The law is clear that those agencies--
independent agencies, I might add--are all asked to develop the 
rule. Treasury had a role in coordinating but not in developing 
the substance or content of the rule, Congressman.
    Mr. Dold. A couple of weeks ago, the FSOC released another 
proposed rulemaking notice on nonbank financial companies which 
provides more detail on the designation framework. Generally, 
the FSOC seeks to assess the company's financial distress on 
the broader marketplace based on three categories: size; 
substitutability; and interconnectedness.
    As it relates to insurance companies, it seems that, based 
on the proposed framework, an insurance company may have 
sizable assets and operations. However, with respect to 
substitutability and interconnectedness criteria, insurance 
companies appear to be less systemically significant and thus 
would not pose a threat to the financial stability of the 
United States and therefore should not be subject to the 
supervision by the board and enhanced prudential standards.
    Since the principal function of your position is to 
recommend which insurance companies may be subject to a 
designation as systemically significant, would you agree that 
nonbank financial companies should not be subject to a 
systemically important designation based on their size alone, 
as scale, interconnectedness, and substitutability of such 
entities all mitigate the impact of such entities on the 
financial stability of the United States?
    Mr. McRaith. As you point out, Congressman, the Dodd-Frank 
Act has established the criteria by which individual 
institutions will be evaluated. There is not, of course, a 
blanket exemption for an industry or category of institution. 
The proposed rule and guidance are open for comment at this 
time, I think it is until December 17th or 19th. Forgive me for 
not knowing the exact date.
    Mr. Dold. We will forgive you.
    Mr. McRaith. But in the middle of December, the comment 
period will close. I encourage any interested institution or 
industry to submit comments and reply to the proposed rule and 
guidance.
    Mr. Dold. In my last 9 seconds, Director McRaith, would you 
not agree that an institution that has filed for restructuring 
through bankruptcy provisions would not be or should not be 
subject to the SIFI designation?
    Mr. McRaith. Without knowing more about the individual 
company or the myriad variables that might apply, it would be 
irresponsible for me to answer that question, Congressman.
    Mr. Dold. Thank you.
    I yield back.
    Chairwoman Biggert. The gentleman yields back.
    The gentleman from Missouri, Mr. Cleaver, is recognized for 
5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Mr. McRaith, welcome to the committee.
    Mr. McRaith. Thank you.
    Mr. Cleaver. This is your fourth, fifth month on the job?
    Mr. McRaith. Fourth.
    Mr. Cleaver. Fourth. Are you jubilant?
    Mr. McRaith. There are a lot of words I would use to 
describe my experience, but I would say, in all sincerity, it 
is a tremendous privilege to work at the Department of the 
Treasury and to be able to work with this Congress and this 
committee again.
    Mr. Cleaver. Agree. John Huff from Missouri, my State, 
speaks highly of you and enjoys working with you; and my 
question, my single question relates to that.
    You are working closely with two other Council members, Roy 
Woodall and, of course, John Huff, and I am just curious about 
how that plays out. Do you think we are duplicating anything? 
Do you think there are similarities that we can further 
separate or distinguish? What are the differences and how do 
you think this trio is working--
    Mr. McRaith. Congressman, Director Huff is a tremendous 
professional and an example of the very best in State 
regulation, and he is also a great friend. I would say that, 
however, even if he were not a great friend. So I appreciate 
his kind words to you.
    We will work closely together. The insurance sector 
reported in excess of $7.1 trillion in assets in the end of 
2010. That means that Mr. Woodall, the independent expert who 
is a voting member of the FSOC, of the Council, Director Huff, 
and I have a lot of work to do. We have to work closely 
together, we have to communicate on a regular basis, we have to 
be sure that the other members of the Council receive the 
benefit of our expertise, of our perspectives, and any decision 
made by the Council should be informed by our viewpoints. How 
that will play out in any one day or week, we will have to see. 
But I am entirely confident, knowing the professionalism of 
Director Huff and Mr. Woodall, that we will be able to handle 
any challenge that comes our way.
    Mr. Cleaver. So you don't envision any trespassing, where 
someone's turf is invaded intentionally or unintentionally.
    Mr. McRaith. These are new interactions for the three of 
us. However, as mentioned earlier, the limitations of the FIO 
authority are clear. We do not regulate the business of 
insurance. That remains the province of the States. My 
expectation is whatever difficulties or challenges we 
encounter, we will be able to work through and establish a 
paradigm that will serve the Council and the country well going 
forward.
    Mr. Cleaver. Thank you.
    Madam Chairwoman, I yield back the balance of my time.
    Chairwoman Biggert. Thank you.
    The gentleman from Ohio, Mr. Stivers, is recognized for 5 
minutes.
    Mr. Stivers. Thank you, Madam Chairwoman.
    Mr. McRaith, thank you for being here today. I appreciate 
your forthright answers.
    I know you were formerly involved with NAIC, and I think 
you testified before a predecessor of this committee in June of 
2008. I think you said something--and I will paraphrase your 
words for lack of an exact quote--like the State system of 
insurance regulation has outperformed the Federal counterparts 
that regulate the securities and banking industry as far as 
both protecting security of consumers and maintaining solvency 
of the industry.
    Do you still feel like that is true?
    Mr. McRaith. Congressman, as mentioned, I served over 6 
years as a State insurance regulator, and I have tremendous 
respect for the professionals who serve in departments around 
the country. In every State in this country, consumers are well 
served by very capable, hardworking, ethical regulatory 
professionals. The traditional PNC life insurers did fare well 
going through the crisis.
    Mr. Stivers. And as a follow-up to that, was it the 
regulated insurance products of AIG or the unregulated 
derivatives--and you have kind of already answered this--that 
helped lead to the downfall of the AIG and the collapse of the 
financial markets?
    Mr. McRaith. The autopsy has, frankly, shown that it was 
not the insurers that caused problems for AIG as a holding 
company.
    Mr. Stivers. Great. Thank you.
    The FIO is charged with doing a study of whether any 
additional--I won't use the word regulation--coordination is 
needed in the Federal office for insurance markets. What are 
you doing to make sure that the bias of your agency--basically, 
you are getting to answer the question, do I need to do more? 
What are you doing to make sure that there is not a bias toward 
additional Federal involvement in insurance?
    Mr. McRaith. Congressman, let me be clear about AIG. We 
should not use that as an example, and we should not use the 
recent crisis as a reason not to examine or explore whether we 
can better regulate the insurance sector. Are there 
inefficiencies? Are there inadequacies in the system? For 
purposes of the modernization in improvement report that we are 
required to publish, we will study all challenges and problems 
within--or potential gaps within the existing insurance system.
    Mr. Stivers. And that is great. Are you doing anything to 
ensure that the bias doesn't come back that automatically says, 
I am the one deciding and I think I should do more? That is my 
question.
    Mr. McRaith. I think you just asked me if I still agreed 
with my statement from 2008. I think I gave you a direct answer 
on that.
    Mr. Stivers. Yes.
    Mr. McRaith. And I would say that the bias is framed by the 
statute. The statute requires us to study these issues, gave us 
considerations--six considerations, six factors. We will study 
those factors and considerations, we will consider comments we 
receive, and we will report back as required by the statute.
    Mr. Stivers. That is great. That is a good answer.
    On subpoena authority, there seems to be a principle of 
regulatory law that usually it is only a regulator that has 
enforcement authority, that has subpoena power, but you have 
been given subpoena power. Do you expect to use that subpoena 
power or do you expect to work through State regulators? I 
think you have already answered this question, but I would just 
like to hear you kind of answer it directly.
    Mr. McRaith. The subpoena power as framed by the statute 
would be used only in the event we cannot, for whatever reason, 
receive data from a State regulator, a Federal regulator, the 
Office of Financial Research, or we ask a business of insurance 
participant to produce information which they then refuse to 
produce. We then have to write findings in support of our 
subpoena and then issue the subpoena.
    So the possibility of actually issuing a subpoena to 
collect information is extremely unlikely and would only be 
necessary, in my view as I sit here today, in circumstances 
where all of us agree it would be appropriate for the company 
to provide us with information.
    Mr. Stivers. One last quick question and that is, do you 
expect to get involved in issues like the tax-free buildup of 
insurance? Frankly, there are a lot of Federal policies that 
sort of determine the viability of insurance. Do you expect to 
get involved? And I hope you will, because the other committees 
have jurisdiction matter on the viability of insurance.
    Mr. McRaith. I think our portfolio and the range and 
breadth of that portfolio is still being defined, Congressman, 
so we look forward to suggestions from any interested party on 
any issues involving the insurance sector.
    Mr. Stivers. Thank you.
    I yield back my nonexistent time, Madam Chairwoman.
    Chairwoman Biggert. The gentleman's time has expired.
    We are going to turn next to the gentleman from Texas, Mr. 
Green, for 5 minutes. Thank you for being here again.
    Mr. Green. Thank you, Madam Chairwoman. I especially thank 
you for allowing me to be a part of the subcommittee. I thank 
the ranking member as well, in his absence.
    And, Mr. Director, I thank you for appearing today.
    You indicate on page 2 of your statement that--and I will 
try to quote you as accurately as possible--``The Dodd-Frank 
Act requires the FIO to issue a report for modernizing and 
improving the system of insurance regulation in the United 
States.'' Could you just briefly give me your thoughts in terms 
of what this actually means, the insurance system in the United 
States? Federal, State, combinations thereof? Would you please, 
just briefly?
    Mr. McRaith. The statute, Congressman, asks the Federal 
Insurance Office to study and report on how to modernize and 
improve the system of insurance regulation in the United 
States. In my view, the statute uses the word ``system'' in 
referring to the State-based system of insurance regulation. 
The statute lays out six considerations and six factors by 
which the study and report are to be guided.
    Mr. Green. And one would assume that you are interested in 
hearing from consumers as to what their thoughts are to help 
you make prudent, judicious decisions with reference to 
modernizing. Is this a fair statement?
    Mr. McRaith. Congressman, that is absolutely true. In fact, 
the statute requires us to consult with a full range of 
interested parties, including consumers. We would do it whether 
the statute required us to do it or not, but we absolutely are 
interested in and want to hear the consumer viewpoints on the 
regulation of the insurance industry.
    Mr. Green. Thank you, and I greatly appreciate your desire 
to get that kind of input.
    How do you publish your notice such that consumers across 
the length and breadth of a country may be aware that their 
comments are welcome? How do you publish it? Do you use 
newspapers, television, radio? What do you do to get the 
clarion call for input out?
    Mr. McRaith. Congressman, it may surprise you that a 
request for comment on how to improve and modernize the U.S. 
system of insurance regulation does not attract headlines in 
every newspaper. People Magazine is not actually interested in 
that topic. However, we did publish notice in the Federal 
Register in which we asked for comment. We also issued a press 
release announcing the request for comment that went out to 
publications and media outlets around the country.
    Mr. Green. My suspicion is that a good number of persons in 
States along the Gulf Coast would be exceedingly interested, 
and the question becomes, how do you get this message beyond a 
press release? I understand that you don't have the funds to 
purchase the air time or to purchase the space in major 
newspapers, but it is important that we get this message to 
people in areas where they have been impacted by insurance 
issues, for example, whether it was wind or water that caused 
damage. It is a big deal along the Gulf Coast, and my suspicion 
is that people who live in these areas where they are impacted 
adversely would want to have some commentary.
    The problem is, how do you get the message to them? And I 
don't know whether we need to come up with something more.
    Would you be amenable to going into the area if a Member 
invited you to come to an area to discuss these issues at a 
town meeting? Is this something that you do? I am not trying to 
create new protocols for you. I am sincerely trying to find out 
how I can get my citizens, my constituents, my consumers, the 
opportunity to be heard.
    Mr. McRaith. Allow me to add some depth to what will be our 
consultation and outreach program.
    The Federal Register notice is just one component of that, 
Congressman. We will also engage individuals representative of 
communities like those you are describing. We will aggressively 
outreach to consumer advocacy groups and solicit their comments 
both in writing and verbally. If there is any group or 
individual you suggest that we meet with or hear from, please 
let us know.
    Mr. Green. With the 9 seconds left, what about the town 
halls? Do you come into a district, if invited, to a town hall 
meeting and stand there with me as we embrace our constituents?
    Mr. McRaith. Congressman, I know that we are open to any 
reasonable possibility to receive input from consumers, from 
the people in your district, and from around the country.
    Mr. Green. Thank you very much, Madam Chairwoman. I am 
honored to yield back.
    Chairwoman Biggert. The gentleman's time has expired.
    The gentleman from Georgia, Mr. Westmoreland, is recognized 
for 5 minutes.
    Mr. Westmoreland. Thank you, Madam Chairwoman.
    Mr. McRaith, do you consider--I know the ranking member 
mentioned credit default swaps with AIG. You really don't have 
any jurisdiction over a credit default swap, do you?
    Mr. McRaith. That is correct.
    Mr. Westmoreland. Do you consider a credit default swap 
insurance?
    Mr. McRaith. That is a subject matter that has been the 
focus of debate for at least a few years, as you perhaps know, 
Congressman. It was the subject of attention from I believe the 
New York Insurance Department a couple of years ago. I think 
State insurance legislators attempted to pass a model law 
allowing the States to regulate those types of products. But as 
I sit here today, I am aware that there are Federal agencies, 
independent agencies evaluating that question, how to define a 
credit default swap.
    Mr. Westmoreland. Do you consider a credit default swap 
insurance?
    Mr. McRaith. Congressman, I need to defer to the agencies 
that have proposed a rule on that subject matter and are 
jointly working on it.
    Mr. Westmoreland. So you don't have an opinion on whether 
it is insurance or not?
    Mr. McRaith. Given the importance of the question, and 
given the range of comments those agencies received, I think it 
is appropriate for me to let them do the good work they are 
trying to do.
    Mr. Westmoreland. Let me ask you about the statutory 
accounting principles that insurance uses, and the Federal 
Reserve uses, the Generally Accepted Accounting Principles 
(GAAP). Do you see a problem if the Federal Reserve wants to 
make the insurance companies start using their accounting 
methods, rather than the ones they have adopted or have adopted 
now?
    Mr. McRaith. Congressman, the publicly traded insurance 
companies, of course, already prepare and report according to 
generally accepted accounting principles. The mutual companies 
do not publicly disclose accounting according to GAAP, but 
according to the statutory accounting practices and principles. 
I am not aware that the Federal Reserve has announced its 
intention or objective with respect to the accounting 
principles. As we move forward, my expectation is that the 
Federal Reserve would make a considered, thoughtful choice on 
that subject.
    Mr. Westmoreland. But it could be rather expensive to the 
insurance industry if they did ask that these reports be 
changed to a different accounting practice. Is that true?
    Mr. McRaith. Without knowing which company we are talking 
about, I would only be speculating, which I don't want to do, 
Congressman.
    Mr. Westmoreland. Okay. Let me ask you, you worked in the 
State insurance industry for, I guess, 6 years in Illinois and 
evidently did a great job; and the monitoring that you are 
talking about doing, I noticed it talked about accessibility 
for minorities and low income. Did you have any of that 
information at the State level?
    Mr. McRaith. At the State level, we saw insurance companies 
making homeowner or personal lines products available to people 
regardless of the communities in which they lived. Having said 
that, there are communities around the country asking the 
question of whether insurance is as accessible and affordable 
as it should be or can be.
    Mr. Westmoreland. But, as far as Illinois went, you felt 
comfortable that you were doing your job as a State regulator 
to make sure that everybody had accessibility to these 
policies?
    Mr. McRaith. We in Illinois have exceptionally competitive 
personal lines insurance markets, the most competitive markets 
in the country. One way we measure accessibility is 
participation in the residual markets, the FAIR plans, the 
residual market for personal lines auto. The participation in 
those programs was so small, among the smallest in the entire 
country, and it is by that standard that I would take the view 
that accessibility was not a problem--Statewide accessibility 
was not a problem. There might be individuals who did encounter 
challenges, however.
    Mr. Westmoreland. But these reports you are going to get 
are not going to make it any easier for you to tell where these 
areas are at, if you could not tell?
    Mr. McRaith. In the Federal Register notice that I have 
mentioned a few times, we asked for interested parties to 
recommend what factors or indicators we should consider as we 
evaluate the best way to monitor accessibility and 
affordability. It is my view that the consumers and industry 
will allow us to develop a thoughtful approach on how best to 
monitor accessibility. What exactly those data points will be, 
Congressman, I can't tell you at this point.
    Chairwoman Biggert. The gentleman's time is expired.
    The gentleman from California is recognized for 5 minutes.
    Mr. Sherman. Thank you.
    I want to commend the gentleman from Georgia for his 
questions.
    Credit default swaps make--there is a technical argument as 
to whether they are insurance, but functionally, they are 
insurance. And the fact that they have escaped the technical 
definition of insurance is why you and I and a few hundred 
million other taxpayers are bailing out AIG. When you allow 
insurance to be sold by companies that are not regulated 
insurance companies, the outcome is not good.
    And now, Director McRaith, I assume that the Federal 
Insurance Office study due out in January on ways to improve 
and modernize the current insurance regulatory system is a de 
novo review that is going to take a fresh look at insurance 
regulation and not just be a recycling of studies Treasury has 
done in the past. Assuming I have read the old studies, am I 
going to see new stuff in the new report?
    Mr. McRaith. Congressman, it will not be a recycling of 
anything that we have seen before.
    Having said that, there may be principles that were 
announced or described in another report. We may echo some of 
those principles. However, the statute asks us to study, which 
we are doing, and then to report, and it prescribes the 
considerations and factors by which the study and report are to 
be guided.
    As I sit here today, I can promise you that review will be 
based on the comments we receive, the consultation process we 
are required to complete, and, ultimately, we hope to provide 
you with a valuable piece of work.
    Mr. Sherman. So everything in the new report is going to be 
the result of new thinking, a new look at the situation, and if 
it bears any resemblance to a former report that will be new 
thinking leading perhaps occasionally to the old comment, but 
it is 100 percent new thinking.
    Mr. McRaith. That is a very broad statement, Congressman. 
What I can promise you is that the report will be based on the 
merits and the substance of the issue, on the practical problem 
and practical solutions to any inefficiencies.
    Mr. Sherman. Is there any page in the new report that you 
are going to say, we didn't bother to think that one through 
again, we just xeroxed an old report?
    Mr. McRaith. Absolutely not.
    Mr. Sherman. Okay. Now, do you anticipate that you will be 
able to release the report according to the original deadline, 
which was January 2012, or is that possibly going to slip?
    Mr. McRaith. We are absolutely working with that deadline 
as our target.
    Mr. Sherman. Thank you very much.
    I think we have votes on the Floor, so I yield back.
    Chairwoman Biggert. Thank you, Mr. Sherman.
    I think I just have one more question, and we do have votes 
pending right now.
    The United States is increasingly exporting services 
abroad, and this certainly includes the financial services such 
as insurance. How can we encourage this trend? And, in your 
view, did the recent House-passed free trade agreements with 
Colombia, Panama, and South Korea help U.S. insurers compete 
abroad?
    And along with that, along a similar line, to help our U.S. 
insurers, including the reinsurance industry maintain a 
competitive edge, it certainly is important that the United 
States have a strong voice on related issues. Are you currently 
working with USTR or other Federal or foreign entities on any 
covered agreements or when do you plan to start working on 
covered agreements? I know it has only been 4 months, so I am 
sure you are quite busy with everything.
    Mr. McRaith. Madam Chairwoman, we are, as you know, 
authorized to develop and coordinate Federal policy on 
international insurance regulatory matters for the United 
States. We are authorized to represent the United States at the 
International Association of Insurance Supervisors. In both of 
those roles, we intend to participate on behalf of the United 
States, and provide active, engaged leadership in a way that 
respects the importance of the U.S.-based insurance industry to 
the U.S. economy, and to the consumers and the employees of 
those companies within the United States.
    Having said that, how we achieve issues, how we achieve 
goals like regulatory equivalence, how we achieve goals like 
protecting U.S. companies from inappropriate international 
standards, we intend to evaluate all of our options, including, 
first of all, leading the consensus, the development of 
consensus internationally, and, secondly, if needed, evaluate 
whether a covered agreement is appropriate.
    Chairwoman Biggert. Thank you. And will these--the free 
trade agreements that were just passed, will they be of help?
    Mr. McRaith. I would love to offer a view on that subject. 
It is my expectation that they will, but I have not studied 
those free trade agreements and can't give you an authoritative 
answer.
    Chairwoman Biggert. I do think that working with the USTR 
in a global area was very important for FIO to be involved in, 
and I am happy that you are doing that.
    Mr. McRaith. Absolutely.
    Chairwoman Biggert. We are having votes. The Chair notes 
that some Members may have additional questions for you which 
they may wish to submit in writing. And, without objection, the 
hearing record will remain open for 30 days for Members to 
submit their written questions to you and to place your 
responses in the record.
    And, with that, I would like to thank you again for being 
here.
    Mr. McRaith. Thank you, Madam Chairwoman.
    Chairwoman Biggert. And we really will welcome you back, 
probably in the near future, again. You have been a great 
witness. So thank you for being here.
    And, with that, this hearing is adjourned.
    Mr. McRaith. Thank you very much.
    [Whereupon, at 3:13 p.m., the hearing was adjourned.]


                            A P P E N D I X



                            October 25, 2011

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