    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

             THE FEDERAL GOVERNMENT'S ROLE IN THE INSURANCE INDUSTRY

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                             HOUSING AND INSURANCE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 24, 2017

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 115-48

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   __________

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking
        Vice Chairman                        Member
    PETER T. KING, New York              CAROLYN B. MALONEY, New York
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
    STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
    BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
    BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
    STEVE STIVERS, Ohio                  AL GREEN, Texas
    RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
    DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
    ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
    ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
    ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
    KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
    LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
    SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
    ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
    BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
    MIA LOVE, Utah                       DENNY HECK, Washington
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
    DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
    BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
    ALEXANDER X. MOONEY, West Virginia
    THOMAS MacARTHUR, New Jersey
    WARREN DAVIDSON, Ohio
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York
    TREY HOLLINGSWORTH, Indiana

                      Kirsten Sutton Mork, Staff Director
                     Subcommittee on Housing and Insurance

                       SEAN P. DUFFY, Wisconsin, Chairman

    DENNIS A. ROSS, Florida, Vice        EMANUEL CLEAVER, Missouri, Ranking
        Chairman                             Member
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    STEVAN PEARCE, New Mexico            MICHAEL E. CAPUANO, Massachusetts
    BILL POSEY, Florida                  WM. LACY CLAY, Missouri
    BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
    STEVE STIVERS, Ohio                  STEPHEN F. LYNCH, Massachusetts
    RANDY HULTGREN, Illinois             JOYCE BEATTY, Ohio
    KEITH J. ROTHFUS, Pennsylvania       DANIEL T. KILDEE, Michigan
    LEE M. ZELDIN, New York              JOHN K. DELANEY, Maryland
    DAVID A. TROTT, Michigan             RUBEN KIHUEN, Nevada
    THOMAS MacARTHUR, New Jersey
    TED BUDD, North Carolina

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        October 24, 2017.............................................     1
    Appendix:
        October 24, 2017.............................................    39

                                   WITNESSES
                           Tuesday, October 24, 2017

    Ehlert, Paul, President, Germania Insurance......................     5
    Schwarcz, Daniel, Professor of Law, University of Minnesota Law
      School.........................................................     7
    Means, Rick, President and Chief Executive Officer, Shelter
      Insurance Companies............................................     9
    Wade, Katharine, Commissioner, Connecticut Insurance Department,
      on behalf of the National Association of Insurance
      Commissioners..................................................    11

                                    APPENDIX

    Prepared statements:
        Ehlert, Paul.................................................    40
        Means, Rick..................................................    50
        Schwarcz, Daniel.............................................    56
        Wade, Katharine..............................................    83

                  Additional Material Submitted for the Record

    Duffy, Hon. Sean:
        Written statement from the American Council of Life Insurers.    90
        Written statement from the American Insurance Association....    93
        Written statement from the Coalition Organized for the Future
          of Insurance Regulation....................................    96
        Written statement from the Independent Insurance Agents &
          Brokers of America.........................................    98
        Written statement from the Insured Retirement Institute......   101
        Written statement from the National Association of
          Professional Insurance Agents..............................   111
        Written statement from the Reinsurance Association of America   115
    Royce, Hon. Edward, R.:
        Article entitled ``AIG's Collapse: The Part Nobody Likes to
          Talk About''...............................................   119
    Ehlert, Paul:
        Written responses to questions for the record submitted by
          Representative Beatty......................................   121
    Means, Rick:
        Written responses to questions for the record submitted by
          Representative Beatty......................................   122
    Schwarcz, Daniel:
        Written responses to questions for the record submitted by
          Representative Hultgren....................................   123
    Wade, Katharine:
        Written responses to questions for the record submitted by
          Representative Beatty......................................   125
        Written responses to questions for the record submitted by
          Representative Hultgren....................................   127
        Written responses to questions for the record submitted by
          Representative Luetkemeyer.................................   128
        Written responses to questions for the record submitted by
          Representative Sherman.....................................   130
        Written responses to questions for the record submitted by
          Representative Royce.......................................   131

                         THE FEDERAL GOVERNMENT'S ROLE
                           IN THE INSURANCE INDUSTRY

                                  ----------

                           Tuesday, October 24, 2017

                         U.S. House of Representatives,
                         Subcommittee on Housing and Insurance,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 10:02 a.m., in
    room 2128, Rayburn House Office Building, Hon. Sean Duffy
    [chairman of the subcommittee] presiding.
        Present: Representatives Duffy, Ross, Royce, Pearce, Posey,
    Luetkemeyer, Stivers, Hultgren, Rothfus, Zeldin, MacArthur,
    Budd, Hensarling, Cleaver, Velazquez, Capuano, Sherman, Kildee,
    Delaney, Kihuen, Gonzalez, and Waters.
        Also present: Representative Heck.
        Chairman Duffy. The Subcommittee on Housing and Insurance
    will come to order. Today's hearing is entitled ``The Federal
    Government's Role in the Insurance Industry.''
        Without objection, the chair is authorized to declare a
    recess of this subcommittee at any time. Without objection, all
    members will have 5 legislative days to submit extraneous
    materials to the chair for inclusion in the record.
        Without objection, members of the full committee who are
    not members of this subcommittee may participate in today's
    hearing for the purpose of making an opening statement and
    questioning the witnesses.
        The chair now recognizes himself for an opening statement
    for 3 minutes. First, I want to thank our witnesses for joining
    us today to discuss the Federal Government's proper role in the
    industry of insurance.
        This subcommittee held a hearing earlier this year on the
    first covered agreement which was subsequently signed by
    Treasury on September 22nd of this year. While that hearing
    focused on issues contained in the covered agreement, it also
    highlighted several issues with the process of entering into
    covered agreements. I hope to continue that lively and fun
    conversation today.
        Since that hearing, I have been working with Congressman
    Denny Heck on legislation that would seek to reform how the FIO
    (Federal Insurance Office) and Congress can impact
    international agreements prospectively as I strongly believe we
    must ensure that the State-based system of insurance regulation
    continues to be protected.
        In addition to the Federal Government's role in
    international insurance issues, I believe we also need to look
    at the FIO's role in general, including its duties at the
    domestic level.
        The FIO has been in place since Dodd-Frank, and I have
    heard from many stakeholders that have called for a range of
    reforms of the office. Some of the most aggressive stakeholders
    have gone so far as to say FIO should be eliminated.
        And we have folks on the other side who say we should
    maintain FIO and actually expand the role of FIO, two
    different--very different views of the role that FIO should
    have.
        And looking at the issues historically and receiving
    feedback, we have an opportunity to streamline the office to
    focus its mission on international issues while removing its
    duties that are duplicative of what is already being done by
    State insurance commissioners and regulators.
        I strongly believe that Congress should have a direct say
    as to whether the U.S. should enter into an international
    agreement, much like we do with a trade agreement, in order to
    ensure we are getting the best deal for our constituents.
        The Treasury Department will release its views on the
    insurances industry as soon as possible, and I am hopeful that
    this new Administration continues to move in the right
    direction and provide signals to the international community
    about the strength of the U.S.-based insurance regulatory
    system.
        I want to emphasize that in signing the covered agreement,
    the Treasury Department issued a unilateral statement saying,
    and I quote, The agreement affirms the U.S. system of insurance
    regulation, including the role of State insurance regulators as
    the primary supervisors of the business of insurance, end
    quote.
        Going forward, the goal of any agreement we look to enter
    into should ensure that our system, our State-based model,
    should be recognized. While it provides me some solace of the
    new Administration, it looks like it is going in the right
    direction and upholding our State-based regulatory system, I
    believe we must pass legislation to make sure that FIO's
    primary focus is on international agreements.
        We know that administrations change and with them the
    priorities of the Treasury Department. I hope to hear from our
    panel today and have a focused conversation on what is the role
    of FIO, what is the future of FIO, and what is the role of the
    Congress in regard to agreements that are cut by FIO. With
    that, my time has concluded.
        And I now recognize the gentleman from Washington, Mr.
    Heck, for 1 minute.
        Mr. Heck. Thank you, Chairman Duffy and Ranking Member
    Cleaver for allowing me to participate today. And I want to
    thank the witnesses as well for providing commentary on these
    bills that, frankly, Chairman Duffy and I have been working on
    for the better part of a year.
        I don't claim to be an expert on insurance. I am not even
    on this subcommittee, but I have been active on insurance
    issues lately because I believe in one thing: State-based
    regulation works, and it should be protected.
        Chairman Duffy. Mr. Heck?
        Mr. Heck. There will always be a temptation in this town--
        Chairman Duffy. Mr. Heck?
        Mr. Heck. Yes.
        Chairman Duffy. I am sorry to interrupt you, but I need to
    ask for unanimous consent to allow your participation in
    today's hearing to follow our rules. I--
        Mr. Heck. Right in the middle of my eloquence?
        Chairman Duffy. Yes, I apologize.
        Any objection?
        Mr. Heck. Can my time start over then?
        Chairman Duffy. Without hearing any, I would love to give
    you your full minute back to continue with this brilliance.
    With that, Mr. Heck, I apologize for interrupting you and
    continue your recognition.
        Mr. Heck. Thank you, Mr. Chair, and thanks again for
    allowing me to be here today, and thank you again to the
    witnesses. It is pretty simple. I think State-based regulation
    works. And I think that this town is always going to want to
    move in the other direction organically to seek to accumulate
    its regulatory reach, but it doesn't always work.
        We have seen this in securities in cases. We have seen it
    in banking, and, frankly, I think we see it with insurance. I
    have also seen the opposite side because I had the privilege to
    serve in the State legislature many years ago.
        And when I was there, truth in packaging, I had the
    privilege to sit on the floor in my first term next to another
    young legislator named Mike Kreidler, who went on to be a
    Member of Congress and, for the last 13 years, has been
    insurance commissioner of Washington State.
        I support State-based regulation because it works. I think
    it is the best way to provide the best business environment,
    the best way to protect consumers.
        And I think for those reasons we should live up to the
    spirit of the McCarran-Ferguson Act, some now 75, 80 years
    later. This is the way to have a healthy insurance market and
    to protect insurance--and to protect consumers.
        And with that, I yield back the balance of my time, and I
    thank you again, Mr. Chairman.
        Chairman Duffy. Thank you, Mr. Heck.
        The chair now recognizes the vice chair of this
    subcommittee, the gentleman from Florida, Mr. Ross, for 2
    minutes.
        Mr. Ross. Thank you, Chairman, and thank you for holding
    this very crucial hearing. I appreciate your bipartisan
    leadership on this crucial reform effort.
        I believe it is important to think about the context of
    this hearing. Insurance is ultimately about how we, as a
    Nation, manage risk. America is a country steeped in tradition
    of risk-taking, from the explorers who sailed across the ocean
    to the pilgrims who sought religious freedom, to the pioneers
    who expanded outward.
        We have, time and again, discovered that there exists a
    balance between risk and reward. We see it with businesses. We
    see it with athletes. We even see it with scientists.
        But not all risk needs to be perilous. That is why we have
    insurance. With insurance, you can manage risk ensuring that
    your worst-case scenario isn't actually the very worst case.
    Such smart risk-taking is a very American idea, and that is why
    it is so important that the rules of the road for insurance are
    clear.
        Stability and certainty in the legal environment means
    ensuring that people can innovate and live their lives with
    confidence. Unfortunately, things are clear as mud.
        FIO has uncertain mandate. Different administrators can
    interpret FIO's role differently. That introduces harmful
    instability into the insurance marketplace when the whole point
    is to keep things stable.
        The chairman's FIO Reform Act and International Insurance
    Standards Acts would go a long way toward addressing existing
    uncertainties and providing the much-needed stability that has
    been compromised in recent years.
        The U.S. insurance market is the single largest and most
    vibrant of any nation in the world. Our market is strongly
    regulated by the States putting an emphasis on the protection
    of the policyholders.
        I support this system as it has existed for over 150 years,
    and believe it is imperative that we expand upon the success of
    this current model. I look forward to the testimony of our
    witnesses.
        And I yield back the balance of our time.
        Chairman Duffy. The gentleman yields back.
        The chair now recognizes ranking member of this
    subcommittee, the gentleman from Missouri, Mr. Cleaver for 4
    minutes.
        Mr. Cleaver. Chairman Duffy, member of the subcommittee,
    witnesses, good morning. I would like to begin by thanking the
    witnesses, particularly Mr. Rick Means from Shelter Insurance
    in Columbia, Missouri, for their testimony.
        Today's hearing will give us another opportunity to discuss
    the Federal Government's role in the insurance industry. As I
    have mentioned many times in this committee, I support our
    State-based insurance system and will continue to do so.
        However, I believe it is critical that the Federal
    Government play the role with which it has been tasked through
    the Dodd-Frank Act and continue to serve as a part of the team
    USA's voice in the international conversation.
        Following the financial crash of 2008, the passage of the
    Dodd-Frank created the Federal Insurance Office and tasked it
    with coordinating Federal efforts and developing Federal policy
    on prudential aspects of international insurance matters,
    including representing the United States in IAIS (International
    Association of Insurance Supervisors).
        FIO, along with the National Association of Insurance
    Commissioners and the Federal Reserve, have been serving as the
    U.S. representatives to the IAIS. It is important to note that
    no standard, absolutely no standard, agreed to with the
    international world is binding on the U.S. unless adopted
    domestically.
        This past September, the Trump Administration signed the
    covered agreement that had been negotiated with the E.U. prior
    to the end of President Obama's term. The signed covered
    agreement will allow U.S. reinsurance companies to be able to
    continue to operate in the E.U. without costly new obligations.
        Additionally, the covered agreement recognized the U.S.
    State-based system in an international agreement--an important
    win for our unique insurance system. I believe that the
    agreement will provide certainty for our insurance system,
    enhance consumer protection, and allow U.S. insurance companies
    to compete in the E.U. market.
        I look forward to hearing from the witnesses, and the
    coming dialog with my colleagues on the other side.
        Thank you, Mr. Chairman.
        Chairman Duffy. The gentleman yields back.
        We now welcome our witnesses. Our first witness is Mr. Paul
    Ehlert, President of Germania Insurance. Welcome. Our second
    witness is Mr. Schwarcz, a law professor at the University of
    Minnesota, which I know well 'cause I was a Mitchell grad, so
    welcome.
        And for the introduction of Mr. Means, I want to look to
    the Chairman of Financial Institutions, the former subcommittee
    chairman of this committee, Mr. Luetkemeyer, for your
    introduction. Mr. Luetkemeyer?
        Mr. Luetkemeyer. Thank you, Mr. Chairman. I am pleased to
    introduce Rick Means, the President, CEO, and Vice Chairman of
    Shelter Insurance based in Columbia, Missouri. A University of
    Missouri graduate and civic leader, Rick has been a part of the
    Shelter team for more than 35 years, has vast experience in
    insurance working in a variety of capacities for his company.
        Shelter is one of my area's largest employers and has grown
    its business to cover policyholders in more than 17 States.
    Rick, thank you for taking time to travel to Washington to
    share your ideas with us today.
        I am sure the ranking member, as he has already mentioned,
    would agree it is always good to have some Missourians here. We
    can hear some stuff from the Show-Me State.
        With that, Mr. Chairman, I yield back.
        Chairman Duffy. The gentleman yields back.
        Mr. Means, you look too young to have that kind of a
    lengthy record but welcome.
        And we also, for our fourth witness, recognize Ms. Wade,
    the Commissioner for the Connecticut Insurance Department,
    testifying on behalf of the National Association of Insurance
    Commissioners. To all of you, welcome.
        The witnesses will, in a moment, be recognized for 5
    minutes to give an oral presentation of their testimony.
    Without objection, the witnesses' written statements will be
    made part of the record following their oral remarks. Once the
    witnesses have finished their presentation, each member of the
    subcommittee will have 5 minutes within which to ask all of you
    questions.
        You will note that on your table there are three lights.
    Green means go; yellow means you have 1 minute left; and red
    means your time is up. The microphones are sensitive, so please
    make sure you are speaking directly into them.
        And with that, Mr. Ehlert, I now recognize you for 5
    minutes for your oral presentation.

                        STATEMENT OF PAUL EHLERT

        Mr. Ehlert. Good morning, Chairman Duffy, Ranking Member
    Cleaver, and members of the subcommittee. Thank you for holding
    this important hearing. My name is Paul Ehlert, and I am
    President and CEO of the Germania Insurance Companies out of
    Brenham, Texas.
        Germania began in 1896 with 31 farmers in rural Texas, a
    grange to insure each other, and has grown to a group of
    companies writing $500 million in personal lines premium and
    insuring over 200,000 families across our State. Being a mutual
    insurance company, Germania exists solely for the benefit of
    our member policyholders.
        I do want to start by saying I appreciate the
    subcommittee's focus on the proper role of the Federal
    Government in insurance regulation. Germania strongly supports
    the State-based system of regulation in the United States and
    is opposed to duplicative and onerous Federal involvement.
        The national system of State regulation has, for more than
    a century, served consumers and insurers well. Any Federal
    regulatory authority, whether designed to replace or duplicate
    this system, would disrupt well-functioning markets, introduce
    competitive inequities, and generate confusion among consumers.
        Unfortunately since the passage of Dodd-Frank in 2010, we
    have seen a growing level of insurance-related activity in
    Washington. And we would urge Congress to consider ways to
    reverse this trend.
        Two bipartisan bills recently introduced under Chairman
    Duffy's leadership would work to accomplish this goal, and
    Germania strongly supports them both.
        First, H.R. 3861, The Federal Insurance Office Reform Act,
    recently introduced by Chairman Duffy and Representative Heck,
    would properly refocus the FIO and bring its activities more in
    line with the original intention for the office.
        Dodd-Frank established the FIO to provide expertise and
    information on the insurance industry to lawmakers. It was not
    given regulatory authority, but was provided some authorities
    that have created unnecessary duplication.
        I believe that the vast majority of U.S.-domiciled property
    and casualty insurance companies, including Germania, would be
    in favor of eliminating the FIO entirely.
        We view the FIO as unnecessary. It performs many redundant
    functions better left to the States, needlessly utilizes
    administrative capabilities, and does not provide public
    benefits to justify its cost.
        That said, H.R. 3861 will be a major step toward returning
    the office to its intended purpose. The bill is designed to
    keep the mission focused on coordinating Federal efforts abroad
    and defending the U.S. market, insurers, and policyholders,
    rather than attempting to regulate the insurance industry here
    at home.
        The bill would also cap the number of employees, limit the
    office's subpoena authority, explicitly prohibit the FIO from
    participating in regulatory supervisory activities, and require
    more consultation between the FIO and the functional State
    regulators. We believe all of these changes would be valuable.
        Second, H.R. 3762, The International Insurance Standards
    Act, would help bring needed oversight to recent efforts to
    create international regulatory standards for insurance
    companies.
        Since the financial crisis, the G-20's Financial Stability
    Board and the International Association of Insurance
    Supervisors have become increasingly engaged in prescriptive
    standard-setting for insurers.
        To date, we have heard no real justification of the need
    for these types of one-size-fits-all standards. And we should
    be skeptical of global regulatory uniformity for uniformity's
    sake.
        We need our country's officials that engage in these
    international conversations to speak in defense of the U.S.
    market, our existing regulatory structure, insurers, and
    especially our policyholders.
        In addition to increasing the transparency at international
    insurance standard-setting bodies, H.R. 3762 would prohibit
    those officials from agreeing to new international standards
    which do not comport with existing State and Federal law.
        The legislation would also provide a process by which
    Congress could vote on a resolution of disapproval for any
    standard or covered agreement that Federal officials negotiate.
        Germania believes that these steps would help to insure
    that foreign regulatory standards inappropriate for our system
    and markets would not be unilaterally imported to the U.S. and
    would provide Congress the ability to exercise its proper role
    in the process.
        Germania believes that both of these bills should be a part
    of any effort to right-size the Federal role in insurance
    regulation. And we urge swift consideration and passage by this
    committee.
        Again, thank you for the opportunity to speak here today,
    and I forward to any questions you may have.
        [The prepared statement of Mr. Ehlert can be found on page
    40 of the Appendix.]
        Chairman Duffy. Thank you, Mr. Ehlert.
        The chair now recognizes Mr.--Mr. Schwarcz for 5 minutes.

                      STATEMENT OF DANIEL SCHWARCZ

        Mr. Schwarcz. Thank you, Chairman Duffy, Ranking Member
    Cleaver, and members of the subcommittee.
        In my remarks today I want to make three major points. The
    first is that the FIO does in fact serve a very important
    purpose in monitoring State insurance regulation. It is
    important to realize that FIO does not have any regulatory
    authority. Its primary mandate is actually to monitor and to
    assess the State-based insurance regulatory system.
        We hear a lot about how strong the State-based insurance
    regulatory system is, but little context as to why.
    Historically, virtually every single major advance in State
    insurance regulation was a result of direct Federal pressure.
        If you look at risk-based capital requirements, if you look
    at guaranty funds, if you look at the accreditation system, if
    you look at market--speed to market reforms, every single one
    of those reforms was driven by the threat of Federal preemption
    and Federal scrutiny.
        So what we can first learn is that the State-based system
    of regulation is strong because the Federal Government has
    played a consistent role in monitoring and overseeing that
    system. But unfortunately, Federal scrutiny has basically
    arisen when there has been a scandal or when the insurance
    industry has lobbied for reform.
        We haven't, before Dodd-Frank, had a systematic way to
    actually ensure that State-based regulatory issues that are
    problematic are dealt with and monitored and rise to the level
    of Federal scrutiny before they become scandals or before they
    trigger a tremendous amount of scrutiny from the industry.
        What FIO does is systematize Federal scrutiny. It allows an
    office to say there are problems and to have a dialog with
    State insurance regulators. That is appropriate and it is
    consistent with the State-based system and why the State-based
    system is as strong as it is.
        The second major point I want to make sure to emphasize is
    that the Federal Government does indeed have a role to make
    sure that there is not systemic risk in the insurance market.
    Systemic risk issues are different than protecting
    policyholders, and it is unbelievable to me that we are not
    even mentioning AIG (American International Group) up to this
    point in this committee hearing.
        AIG was an insurance. AIG caused tremendous externalities
    to the entire financial marketplace because of its failure. And
    so what we know from AIG, and what we know frankly from pretty
    much every angle in the academic realm, is that insurance
    companies can become systemically risky. They can indeed impart
    tremendous harms on the rest of the economy, and we can't
    simply ignore that risk.
        As a result, this Federal system has a role to play in
    making sure that insurers don't take on too much risk. Why?
    Because frankly States are limited in this capacity.
        While States do a great job at regulating solvency, they do
    not have a role to play, and they certainly don't exercise the
    role well in my view, in regulating for systemic risk.
        Why? Well most State insurance regulation is focused on
    individual insurance companies. It is not focused on the
    aggregate company as a whole. And that is problematic because
    if you are going to regulate a company on the basis of the
    concern that it might actually have broader costs for the
    financial system as a whole, you need to regulate that company
    as a whole.
        That is what we do when we designate firms as systemically
    significant via FSOC (Financial Stability Oversight Council)
    and we impose upon them consolidated supervision and prudential
    oversight. And that is entirely appropriate.
        Third, the Federal Government has a major role to play in
    coordinating international negotiations for two reasons. First,
    the Federal Government can coordinate disparate States and send
    a unified message.
        It also has unique clout in the Federal environment
    because, frankly, the Federal Government is usually the voice
    of the United States in the international arena and that is
    what international actors expect. But moreover, systemic risk
    is an important issue in the international arena precisely
    because it can't be cabined by national or international
    borders.
        As a result, the Federal Government does have a role to
    play there and that role should not be undermined by, for
    instance, requiring FIO to achieve consensus among the States.
    Frankly, most of the time, there are different views amongst
    the States so that standard in completely unrealistic.
        And it should also not be cabined by preventing FIO from
    negotiating advances in international standards. As Mr. Cleaver
    mentioned, international standards are not law. If they are
    problematic, if they are not accepted domestically we do not
    have to import them into our domestic law.
        So for those reasons I do believe the Federal Government
    has an important role to play in the international insurance
    realm. Thank you.
        [The prepared statement of Mr. Schwarcz can be found on
    page 56 of the Appendix.]
        Chairman Duffy. Thank you, Mr. Schwarcz.
        Mr. Means, you are now recognized for your opening
    statement for 5 minutes.

                         STATEMENT OF RICK MEANS

        Mr. Means. Thank you, Chairman Duffy, Ranking Member
    Cleaver, and the members of the subcommittee for holding this
    hearing on two important bills that would benefit consumers and
    the insurance markets.
        My name is Rick Means, and I am the President and Chief
    Executive Officer of the Shelter Insurance Companies. Shelter
    is a mutual company headquartered in Columbia, Missouri
    providing auto, property, business, and life insurance in 20
    States, as well as provide reinsurance internationally. I am a
    member of the board of the Property Casualty Insurance
    Association of America.
        Shelter strongly supports H.R. 3861, the Federal Insurance
    Office Reform Act of 2017, and H.R. 3762, the International
    Insurance Standards Act of 2017.
        The business of insurance is and should be regulated at the
    State level. While no regulatory system is perfect, State
    insurance regulations have effectively protected consumers for
    150 years and with a much stronger record of preventing
    failures and protecting consumers than most Federal regulators.
        State regulators already have over 11,000 staff supervising
    insurers. We don't need a second layer of Federal bureaucracy.
    State regulation, which helps to keep our insurance industry
    solvent, is relatively uniform, while consumer protections are
    tailored according to State law to protect local community
    businesses and families.
        Congress and the Administration considered Federal
    insurance regulation during the Dodd-Frank Act deliberations,
    but ultimately left McCarran-Ferguson largely intact in favor
    of State insurance regulation.
        One gap in State regulation that Congress recognized was a
    lack of a spokesman to represent the Federal Government
    internationally. The Federal Insurance Office was created in
    large part to fill this role.
        But FIO is not a regulator. While the Federal Reserve Board
    or the SEC (Securities Exchange Commission) are the primary
    regulators for banking or security standards, for insurance the
    States are the primary regulators. The States would ultimately
    have to implement any international standards, not FIO.
        And yet it has never been clear on whose behalf FIO is
    negotiating. Certainly not on behalf of the State regulators
    who are often in conflict with FIO.
        In fact, FIO is under the direction of the Treasury
    Department, which historically has had a banking dominated
    perspective. The Treasury Department previously opposed--
    proposed to eliminate State insurance regulation, both
    immediately, prior to, and during the Dodd-Frank Act
    negotiations. So it stands to reason that Treasury has not been
    willing to closely coordinate with those same State regulators.
        For example, the International Association of Insurance
    Supervisors used to hold most of its meetings open to public
    participants. FIO voted with foreign regulators, over the
    strong objections of the U.S. State insurance regulators, to
    close those meetings to the public.
        The vast majority of international insurance meetings are
    now held behind closed doors without accountability. I have
    included a chart showing the scope of these meetings
    potentially affecting all corners of the regulatory system.
        FIO has also refused to coordinate with States in advance
    of critical international negotiations and even ran against
    U.S. State regulators for international leadership positions.
    This degrades U.S. credibility and undermines our international
    strength. It is not what Congress intended and must be fixed.
        Instead of focusing on developing strong team USA
    positions, FIO has spent--spent considerable resources second
    guessing the States on their core activities and threatening
    State regulators with Federal intrusion.
        FIO has imposed multiple data calls on insurers on subjects
    well within State authority, such as auto insurance and
    terrorism insurance. The State regulators on multiple occasions
    offered to coordinate data calls to avoid duplication and
    conflict. Instead they both issued data calls creating cost and
    burdens for us as insurers, with little benefit, as FIO's
    mission creep continually expanded.
        The Duffy and Heck bills would move FIO to the Treasury's
    international division and eliminate FIO's regulatory subpoena
    power, which was never appropriate given that it is a non-
    regulator. And it would help to end unnecessary data calls.
        We need FIO and the States working together, not in
    conflict, and we need FIO to focus on its international
    mission. With appropriate safeguards and appropriate
    supervision by Congress, the Duffy-Heck bills would focus--
    would focus FIO toward that end.
        I want to stress that the FIO staff has recently made great
    efforts to repair relations with the States and refocus their
    efforts and should be commended for those--for these
    improvements.
        But Congress should take this opportunity prior to these
    changes and to ensure that in the future FIO works with the
    States and stakeholders and not against us.
        Shelter strongly supports the Duffy and Heck bills and
    urges members of this committee to do the same. Thank you very
    much.
        [The prepared statement of Mr. Means can be found on page
    50 of the Appendix.]
        Chairman Duffy. Thank you, Mr. Means.
        The chair now recognizes Ms. Wade for an opening statement
    for 5 minutes.

                       STATEMENT OF KATHARINE WADE

        Ms. Wade. Thank you Chairman Duffy, Ranking Member Cleaver,
    and members of the subcommittee. I appreciate the opportunity
    to testify today regarding the appropriate role for FIO and the
    need for additional oversight on the Federal Government's
    engagement on international insurance issues.
        Specifically I offer the NAIC's (National Association of
    Insurance Commissioners) support for two pieces of legislation
    under consideration. Chairman Duffy and Congressman Heck, we
    appreciate your leadership and support for State-based
    insurance regulation.
        First, the NAIC supports the International--International
    Insurance Standards Act. We worked extensively with our
    international regulator counterparts to develop best practices,
    but we are always mindful of protecting the interests of our
    consumers and maintaining stable, competitive insurance
    markets.
        International dialog is important, but we must not allow
    international policy decisions to drive changes to our domestic
    regulatory framework that could potentially disadvantage or
    undermine the stability of the U.S. insurance sector.
        The U.S. insurance market is the largest and most
    competitive in the world. Nearly 6,000 insurers write $2
    trillion in annual premium and employ 2.2 million people. State
    insurance regulators supervise more than one-third of all
    global premium, and taken individually, U.S. States make up 26
    of the world's 50 largest insurance markets.
        State insurance regulators are committed to working with
    our Federal colleagues, the Federal Reserve and FIO, as we
    engage internationally. However, it is important to understand
    that their authorities in the insurance sector are more limited
    than those of the States, the primary insurance regulators.
        The Fed regulates depository institution holding companies
    with insurance operations and any insurers designated by the
    Financial Stability Oversight Council.
        In the same vein, FIO has no regulatory or supervisory
    authorities, but we recognize that the Treasury Department has
    an interest in financial stability and the health of our
    national economy generally.
        Therefore, while we--while it is critically important that
    we all work together internationally as part of team USA, we
    must do so with appropriate recognition of our respective
    domestic authorities.
        While there has been a noticeable and welcomed improvement
    in the relationship and coordination with FIO, this has not
    always been the case.
        For the last 6 years, FIO's involvement in international
    regulatory standard-setting has made it more difficult for U.S.
    regulators to defend our domestic regulatory framework. The
    standards at the IAIS continue to reflect a largely European
    approach to supervision, and in certain fundamental aspects
    would not be compatible with the U.S. system.
        Furthermore, FIO is not a regulator and does not represent
    insurance regulators so its significant involvement in
    regulatory standard-setting, has up until recently, led to a
    disconnect between our domestic regulatory direction and the
    international agenda.
        Likewise, the Fed has had an outsized role in insurance
    regulatory standard-setting, particularly in light of its
    limited insurance regulatory role. Moreover, despite
    significant efforts to work with our Federal counterparts on
    international matters, we have been disappointed with their
    unwillingness to include us in international discussions in
    other forums, like the FSB.
        Given our past experience, we believe it is appropriate for
    Congress to provide additional oversight of the Federal
    Government's engagement on international insurance issues.
        The International Insurance Standard Act addresses many of
    our long-standing concerns. It requires Federal Government
    representatives to include insurance regulators in any
    insurance discussions and defend the U.S. system of regulation,
    the will of Congress and the States. It also enhances
    transparency of any international agreements and approves
    congressional oversight.
        Second, the NAIC supports the Federal Insurance Office
    Reform Act. This legislation is a positive step toward
    refocusing FIO in areas where it can provide the most value to
    the Federal Government and tailoring its size to fit those
    needs.
        It makes clear FIO represents the Treasury Department and
    is responsible for coordinating Federal international insurance
    policymaking. Under a key provision, FIO must consult and reach
    consensus with State insurance regulators on international
    matters.
        This is critically important in standard setting where it
    is most appropriate to defer to the States as the primary
    regulators of the sector.
        The proposal limits the size of FIO and refocuses it on its
    highest and best use, a policy office within the Treasury
    Department and a voice for the Federal Government on
    international insurance matters.
        In conclusion, we support these two pieces of legislation.
    They encourage deference to our insurance regulatory system,
    support greater Federal-State cooperation, promote
    transparency, and provide more clarity to Federal agencies
    regarding their role with respect to the insurance sector,
    ultimately resulting in better outcomes for the U.S., our
    companies, and our citizens.
        Thank you for the opportunity to testify today. I look
    forward to your questions.
        [The prepared statement of Ms. Wade can be found on page 83
    of the Appendix.]
        Chairman Duffy. Thank you, Ms. Wade.
        The chair now recognizes himself for 5 minutes for
    questioning. I just first want to go to the concept of our
    State-based insurance model. Does anyone think we should cash
    that in and go to a new or different regulatory model? If you
    do, say yes.
        Mr. Schwarcz, do you want to cash that in, just to be clear
    on your testimony?
        Mr. Schwarcz. I think--I think that the current system we
    have now is a dual system, frankly. I think the Federal
    Government plays a role, and I think that role is appropriate.
    I think the Federal Government has always played that role. So
    I think that is appropriate. That is consistent with State
    primacy.
        Chairman Duffy. And I wanted to look forward to legislative
    fixes, but before I do that I do want to take a look back. And
    Mr. Schwarcz had mentioned AIG.
        But maybe I will go to Ms. Wade first. When you look at AIG
    and the insurance aspect of AIG versus the holding aspect of
    AIG, did the insurance portion of AIG fail that was supervised
    by the--this--under our State insurance model? Or did the
    holding company with financial products fail? Do you know the
    answer to that?
        Ms. Wade. It was the holding company related to the
    financial products. So the Office of Thrift Supervision was the
    consolidated regulator for--for AIG at the time. The States had
    identified this--the securities lending issues and were winding
    those down.
        It was the result of the derivatives, the financial
    products, that caused a liquidity crisis that resulted in AIG's
    challenges during the financial crisis.
        Chairman Duffy. So just to repeat again, who was the
    regulator of the holding company of AIG.?
        Ms. Wade. The Office of Thrift Supervision.
        Chairman Duffy. Now, are they a State insurance regulator?
        Ms. Wade. No, and in fact State insurance regulators were
    preempted from addressing the issues that caused the--
        Chairman Duffy. And so the problems were not on the
    insurance side that was regulated by the State. Is that
    correct?
        Ms. Wade. Correct.
        Chairman Duffy. So to use that as an example of why the
    State-based model doesn't work, really isn't accurate is it?
        Ms. Wade. No, it is not.
        Chairman Duffy. And if you look at the 100 year plus
    history of the State-based model, would you argue that it has
    worked, actually, fairly well?
        Ms. Wade. Yes, it has. It has worked very effectively for
    150 years.
        Chairman Duffy. I would agree with you. And so I want to
    move, and Ms. Wade, I want to focus on you for a moment. You
    have had a lot of dealings in your role as we have gone through
    the covered agreement process. What are your thoughts on how
    that process actually worked on the first covered agreement?
        Ms. Wade. So we appreciate the clarifications that the
    Administration has given because we had some concerns with a
    covered agreement because of the ambiguity of the language.
        The covered agreement addressed a very specific situation.
    But we believe that the U.S. statement of position that we will
    not be adopting Solvency II in the United States, the
    recognition from the European Union of the capital calculation,
    not the capital standard that the U.S. is developing.
        We are developing a capital standard to look at across
    group--across the groups. And we believe that after the covered
    agreement was brought forward, States were able to--56 of us
    were able to get together and come up with a position on how we
    felt about the covered agreement.
        Chairman Duffy. In regard to the process of coming up with
    an agreement, how was the cooperation and collaboration and
    information flow from FIO to State commissioners?
        Ms. Wade. So the commissioners that participated were not
    able to talk to the other regulators--other State regulators to
    talk to them about the issues involved. They were given access
    to some information and they were allowed in some of the
    meetings but not all of the meetings.
        Chairman Duffy. And so do you think there is room for
    improvement?
        Ms. Wade. Yes, absolutely, there is room for improvement
    and that is why we support the legislation.
        Chairman Duffy. Thank you. If we look at how the U.S.
    Government implemented the covered agreement versus the E.U.,
    the European Union actually had a vote on the covered agreement
    where we in Congress did not have a vote.
        Mr. Ehlert, do you believe that the Congress should have a
    role in approving or disapproving covered agreements?
        Mr. Ehlert. Definitely, Chairman Duffy. I don't think
    Congress would want to abdicate the lawmaking ability, both--
    both at a Federal or a State level to some international
    regulatory bodies.
        Chairman Duffy. It is fair to say that this has a huge
    impact on all of our States. And if you outsource it for an FIO
    to cut an agreement without our approval, we are
    disenfranchising the very people who elected us to represent
    them.
        This is, I think, an affront to our representative
    democracy when you have rulemaking through the legislative
    process or a--or a covered agreement process that doesn't
    include the Congress. With that my time has expired.
        I now recognize the ranking member, Mr. Cleaver, for 5
    minutes.
        Mr. Cleaver. Thank you, Mr. Chairman. Two months ago the
    President signed a covered agreement. And on the day that he
    signed that agreement, the Secretary of Treasury Steven Mnuchin
    was quoted as saying, and I quote, After extensive stakeholder
    engagement and review, Treasury has concluded that the covered
    agreement with the E.U. is a win for the United States, the
    insurance industry and U.S. policyholders.
        Mr. Schwarcz, do you embrace the words of the secretary?
        Mr. Schwarcz. I agree, and I think that there are different
    types of international agreements, but there are plenty of
    scenarios in which the executive branch is authorized to enter
    into foreign agreements without congressional approval.
        So I don't think that it is a bit of hyperbole to call that
    an affront to our representative democracy. And just if I may,
    I just want to briefly respond to one other thing that the--
    Chairman Duffy said.
        In my view it is incorrect. It is a narrative that State
    insurance regulators have pushed that they are not at fault at
    all for AIG's failure.
        AIG's failure was absolutely just as much a product of its
    securities lending operations at its--as its default
    operations. It would not have failed were it not for the fact
    that it had lent out the assets of its insurance companies to
    other entities, taken that money and invested it in mortgage-
    backed securities.
        Moreover, it is absolutely incorrect to say that State
    insurance regulators were on top of it. This is just a
    quotation from the U.S. Government Accountability Office, a
    nonpartisan office as far as I understand, ``Prior to mid-2007,
    State regulators had not identified losses in the securities
    lending program. And the lead life insurance regulator had
    reviewed the program without major concerns.'' OK. So this
    narrative that State insurance regulators weren't at fault is
    wrong.
        Now, I admit Federal regulators also had a role to play in
    AIG's failure. The Office of Thrift Supervision did not execute
    its duties responsibly.
        That is why we reformed the system and got rid of the
    Office of Thrift Supervision. But we also need to take a look
    at the failures of State insurance regulators in the context of
    AIG.
        Mr. Cleaver. Yes, just--just for the record again, at every
    committee hearing I have participated in over the years on--on
    this subject I have talked about my irreversible commitment to
    continue the State regulatory system in the--in the country.
        I would like to get to Mr. Means, and you too, Professor
    Schwarcz, do you believe that the FIO actually plays an
    important role and what would happen if it disappeared?
        Mr. Means. Thank you, Mr. Cleaver. Yes, I think FIO has a--
    has a position, has a place, but it needs to make sure it stays
    out of State regulation and it works to be the face of the
    insurance business internationally.
        That it gets input in the NAIC, from State regulators, to
    make sure that whatever position they are taking
    internationally is supported by what the--what the States and--
    want to see them do. So I think there is--there is a place
    there for--for FIO, as long as it includes getting input from
    Congress, getting input from the States and represent us--
    represents us internationally.
        Mr. Cleaver. Professor?
        Mr. Schwarcz. I absolutely think FIO has an important role.
    As I mentioned in my testimony, and it is elaborated on my
    written testimony, if you look at the State-based insurance
    system every single major advance in that system was a result
    of failure, Federal scrutiny, and then reform at the State-
    based level.
        A system works well when it is being monitored and
    scrutinized. And that is the role of FIO. It is not a
    regulator. All it does it scrutinize and monitor the system.
        And it is simply inconceivable to me that we would talk
    about the strengths of the State-based system without
    acknowledging the history the Federal Government has role--has
    played in scrutinizing it and making that scrutiny systematic
    and prevent--and making sure it happens before there is a
    crisis or before there is active efforts to--to lobby is smart.
        Mr. Cleaver. Mr. Means, Missouri lost Monday night to K.U.,
    something has to happen. Thank you.
        Mr. Means. I would agree. I wished I had some input into
    that, but it was a close game and everybody played hard. So we
    are looking forward to a good season.
        Chairman Duffy. The gentleman yields back.
        The chair now recognizes the vice chair of this
    subcommittee, the gentleman from Florida, Mr. Ross, for 5
    minutes.
        Mr. Ross. Thank you Chairman. And I want to thank our
    panelists for being here today, too. Look, as a strong
    proponent of the State-based system, I think it is a tremendous
    example of States' rights and something that has worked
    significantly well.
        And Ms. Wade, especially as a regulator, I think that you
    can attest to the fact that State-based systems have had a
    strong track record in terms of solvency. And-- could you just
    elaborate a little bit on why?
        Ms. Wade. Sure. So since the financial crisis, the States
    had made a number of improvements in our financial solvency
    modernization initiative. So we have taken a number of steps
    forward in terms of having companies put together an own risk
    and solvency assessment. It is called an ORSA, where they look
    at their entire group of insurance and non-insurance entities.
        Talk about the risk, how they are addressing the risk, and
    where they are in the continuum of solving the risk. We have
    done a lot of initiatives in terms of corporate governance
    disclosure. And it--
        Mr. Ross. And--and risks are heterogeneous--
        Ms. Wade. Yes.
        Mr. Ross --across this country. I mean, the risks in
    Florida are different than the risks in Connecticut or
    California or somewhere else. So it requires that local, if you
    will, State perspective on assessing those risks, also in terms
    of solvency, also in terms of consumer protections.
        Now, Professor Schwarcz would suggest, however, that there
    is a greater degree of purity at a Federal level that would
    allow for the States to be monitored because apparently State
    regulators and State legislatures who are behind their
    certificates of authority that give these insurance companies
    that opportunity just can't monitor sufficiently.
        In other words, you all don't have it right on fraud,
    waste, and abuse. You all don't have it right on consumer
    protections. And if it wasn't for the white horse of the
    Federal Government, you all might not be needed in this market.
        How do you respond to that when we have a process that has
    worked for 150 years, probably better than any other regulatory
    scheme this Nation has seen?
        Ms. Wade. We work very hard to look at what we do every
    day. Our job, first and foremost, is consumer protection. And
    we look at our system and we adapt to--we see things coming in
    the future. We--we address those issues. We are accountable to
    Governors and State legislatures for what we do.
        And we are--
        Mr. Ross. And--and you are accountable to consumers, to
    policyholders. And can you imagine the IAIS, not only imposing
    different capital standards, but also different consumer
    protection standards? Is that not a possibility?
        Ms. Wade. That is a possibility.
        Mr. Ross. And should we not have somebody at the table with
    insurance experience and a regulatory scheme at the table with
    the IAIS, instead of somebody in a regulatory scheme for the
    Federal Government?
        Ms. Wade. It is very important to have legislators--have
    regulators that work day to day in regulating the U.S.
    insurance markets at the table to explain how the system works.
    Our system is different than--than the European systems and
    others. And it is very important that State regulators are at
    the table having those conversations.
        Mr. Ross. Thank you.
        Mr. Means and Mr. Ehlert, real quickly, what is the true
    impact here in terms of consumer protections, in terms of the
    products for the consumers? If we are talking about increased
    capital standards, if we are talking about greater regulatory
    burdens and compliance on behalf of domestic insurance
    companies, does that not go against what you have a fiduciary
    responsibility to to your mutual members?
        Mr. Ehlert. Are you directing that question to me?
        Mr. Ross. Yes, sir.
        Mr. Ehlert. Yes, we do. Being a mutual insurance company,
    our members are the owners of our insurance company.
        Mr. Ross. Correct.
        Mr. Ehlert. Any costs that we incur that is unnecessary is
    just added to our premiums that our insurers have to--
        Mr. Ross. Also compliance. The number one job in the
    country today is a compliance officer. Isn't that a shame?
        And Mr. Schwarcz, professor, you are a professor of law,
    and God bless you because I am a student of the law, you have
    to believe in due process.
        And if you believe in due process than why not--if we are
    going to have SIFI (systemically important financial
    institutions) designations, which I think MetLife was pretty
    successful in showing that they didn't need to be, and when in
    fact the only person on FSOC who has insurance background who
    served as an insurance commissioner said do not designate them.
        They designated them and the courts can go back and say
    hey, you know what? You shouldn't have designated them. But if
    you are going to designate a non-bank financial institution as
    a SIFI, would you not agree as a lawyer that they should have
    due process?
        One, they should be put on notice that they are being
    investigated; two, you have an opportunity to correct that; and
    three, once you get a chance to correct that, there is a period
    of time by which you will be reassessed. But that doesn't exist
    today, does it today, professor?
        Mr. Schwarz. Actually, that is not correct. It--they were--
        Mr. Ross. No, there is no due process--
        Mr. Schwarz. Yes, it--
        Mr. Ross --as a SIFI--
        Mr. Schwarz. Well, do you want me to respond?
        Mr. Ross --designation.
        Mr. Schwarz. Or no?
        Mr. Ross. Go right ahead.
        Mr. Schwarz. That is not correct. They were told at stage
    three that they were being--
        Mr. Ross. At stage three.
        Mr. Schwarz. At stage three.
        Mr. Ross. Where was stage one?
        Mr. Schwarz. They were allowed--
        Mr. Ross. How did they know about that?
        Mr. Schwarz. They were allowed at that time to--to meet
    multiple times with FSOC staff. They presented their case. They
    had multiple meetings, and, at the end of the day, they were
    designated.
        One other thing, I believe you mischaracterized my
    testimony. I never said that the Federal Government should have
    a role in consumer protection. I said that the Federal
    Government should have--
        Mr. Ross. Should monitor--
        Mr. Schwarz --a role with respect--
        Mr. Ross. Should monitor.
        Mr. Schwarz. To monitor.
        Mr. Ross. Does that not be--
        Mr. Schwarz. Absolutely.
        Mr. Ross --is that not a broad brush as to what the
    insurance industry is allowed to--
        Mr. Schwarz. So you don't want to monitor State insurance
    regulation? I thought that--
        Mr. Ross. I think we do monitor well, and I think Mrs. Wade
    has--has testified to that, as have all the other 50 States who
    have done very well in protecting their consumers.
        And I yield back.
        Chairman Duffy. The gentleman yields back.
        The chair now recognizes the ranking member of the full
    committee, the gentlelady from California, Ms. Waters, for 5
    minutes.
        Ms. Waters. Thank you very much. Mr. Schwarcz, I think you
    have done an excellent job of describing what you think a
    relationship might be. For those members on the opposite side
    of the aisle, we are trying to change history about AIG and
    trying to imply that somehow you want the Federal Government to
    take over all State insurance.
        Take this time and continue to straighten them out. The
    floor is yours.
        Mr. Schwarcz. Thank you very much. It is well-recognized
    with respect to AIG that there were two major problems. There
    were problems with its credit defaults swaps and there were
    problem--problems with its securities lending operations.
        And the problems, as I mentioned, with the securities
    lending operations we are--were not caught in time by State
    insurance regulators. That is the conclusion of the--of the
    GAO, not just my conclusion.
        Moreover, what is really important to understand here is
    the reason those two problems were catastrophic for AIG is
    because they both worked in exactly the same direction, but
    from different points in the company.
        Credit default swaps was basically insurance on mortgage-
    backed securities. Securities lending was essentially a way to
    invest in mortgage-backed securities.
        In order to appropriately appreciate the risk that exists
    there, you need to take a holistic perspective on the company
    and understand that they are taking major risks in the exact
    same way across disparate elements of the company.
        State insurance regulators are not well-equipped to do that
    because they focus predominantly on individual insurance
    entities. They do not focus holistically.
        So when I say that there is a role for the Federal
    Government to play, it is not to take over consumer protection.
    It is not to undermine the State-based system, but it is to
    supplement the State-based system when it is necessary. And I
    think that is really what has happened.
        The other thing I would just note with respect to that is
    that the Federal Government has actually done, I think, a
    pretty good job at monitoring the State insurance regulatory
    system over the last 5, 6, or 7 years.
        And if you look at many of the changes the State insurance
    regulators have made over the last 7 years, there is no doubt
    that a part of the reason why they made those changes was
    because FIO was suggesting them and encouraging them to do it.
        No system is perfect. Every system should be scrutinized.
    The State-based system, look, it works very well on a wide
    range of topics, but that doesn't mean that there shouldn't be
    systematic scrutiny at the Federal level.
        The idea that this is draining resources is, again, it is
    ludicrous. I mean we are talking about a dozen people in the
    Treasury Department who are writing reports. I have no idea how
    that undermines the State-based system or imposes costs on
    policyholders.
        The one area where FIO does have an authority is to--is to
    ask--is to get data when it is necessary to monitor the system.
    And they almost never use that authority, but when they do it
    it is because the States are refusing to do so.
        And I know that on a topic that is quite important to you,
    Congresswoman Walters--Waters, with respect to affordability,
    the State-based system just recently decided you know what? We
    don't need to get individual insurers' data on affordability,
    even though there was wide-ranging agreement that was necessary
    to determine whether particular insurers were playing a role
    with respect to that issue.
        Instead they said, ``We are going to go aggregated data.''
    Well, that is an instance where you know what? FIO probably
    does have a role to play in saying you know what? Let us look
    at the data and see whether affordability issues that we have
    identified are, indeed, being caused by certain insurers or
    certain individual insurance practices.
        Ms. Waters. Thank you very much, and I would like to thank
    you for mentioning the role that I played in Dodd-Frank that
    requires the Federal Insurance Office to monitor the
    affordability and accessibility of insurance to traditionally
    underserved communities.
        I am concerned that this authority will be rendered
    virtually meaningless if FIO's ability to collect data from the
    insurance industry is undermined. So that is a role that can be
    played.
        I think that some of my colleagues on the opposite side of
    the aisle are making too much of what we are talking about in
    this relationship.
        Nobody is talking about taking over. Nobody is talking
    about denying. We are talking about working together with the
    international concerns that must be dealt with.
        And so I thank you for your testimony here today. I am
    hopeful that we are wise enough to understand the relationship
    and how it can be helpful to all of our citizens as we deal
    with insurance.
        So with that, Mr. Chairman, I will yield back the balance
    of my time.
        Chairman Duffy. The gentlelady yields back.
        The chair now recognizes the gentleman from New Mexico, Mr.
    Pearce, for 5 minutes.
        Mr. Pearce. Thank you, Mr. Chairman. Thanks to each one of
    you for being here today. Just trying to summarize for myself
    what the discussion is about.
        We have got State people saying that we do a pretty good
    job, and we have got some of the largest insurance markets in
    the world and please don't mess with it. And the other side
    saying that, well, the Federal Government is here, I guess here
    to help you.
        I think Mr. Schwarcz's comment was that their job is to
    assist, they are here to assist the State-based system. Some of
    the scariest words known to my constituents are, ``I am from
    the Federal Government, and I am here to assist you.'' So I
    worry about that, and I hope you understand that.
        Mr. Schwarcz goes on to say on page seven--Ms. Wade, I will
    probably direct this to you--``The State insurance regulations
    as it exists today is fundamentally a product of periodic
    Federal scrutiny which consistently have proven to be the key
    catalysts in prompting States.''
        Is that accurate from your perspective, that the only
    reason y'all have ever made changes is because somebody from
    the Federal Government brings it to your attention, and they
    are the key catalyst?
        Ms. Wade. No, I would not say it has been the key catalyst
    of all changes that have been made in the State-based system.
    We constantly as--as regulators are looking at how we do our
    jobs and looking at ways we--that we can improve the system and
    improve our oversight of insurance entities.
        Yes, we have responded to criticism from industry, other
    stakeholders, as well as from the Federal Government over time,
    but--but not all changes to the State-based system have been
    driven by Federal--Federal--the threat of Federal oversight.
        And--and if I can respond to Professor Schwarcz related to
    AIG--
        Mr. Pearce. Fine.
        Ms. Wade. It--it is--it--the insurance entity remained
    solvent. The real issue was the derivatives. And if that--the
    Federal Government got repaid through the insurance
    subsidiaries making--making good on the--on the money that it
    was given by the Federal Government. So--
        Mr. Pearce. Well, let us go ahead and--
        Ms. Wade --it has worked.
        Mr. Pearce. Let us go ahead and consider that because,
    again, the AIG is used as the document here from Mr. Schwarcz.
    It says that y'all were incapable and it took the oversight of
    the government to look at that.
        And he says that AIG was taking money from customers,
    basically, and lending it out, which is not a good deal. And
    the assertion is that the--without the Federal Government no
    one would have seen that.
        Now for me, those same Federal regulators were sitting
    watching MF Global. They were in the room over the period of
    weeks while MF Global took $1.8 billion out of customer
    accounts and tried to--to hold onto their business. And they
    didn't really say anything.
        And so the idea that the Federal regulators are going to be
    these white horses that bring it to your attention because they
    are so, so in tune with it, is one that I personally don't
    believe, but I am willing to listen to it.
        I also look at Bernie Madoff. He started his business in
    1960 and they didn't finally do anything until 2008. So seven--
    $68 billion or $65 billion, which is almost the equivalent to
    the AIG failure--it was about $99 billion--but--so the Federal
    regulators sat in there watching. And people called and said,
    ``Hey, this guy is scamming us.'' They couldn't quite get the
    focal point on it.
        And so they decided, yes, that the regulators are going to
    be there from the Federal Government here to help you and to
    assist you and you are--the only reason you make a mistake--or
    the only reason you correct your mistakes is because of that,
    is one that I find suspiciously directional.
        Now, what does all of this mean at the end of the day? I
    think that Mr. Means maybe you hit that on a back chart here.
    Is that something that you are familiar with?
        Mr. Means. Yes.
        Mr. Pearce. That you are eliminated from 80 percent of the
    discussions--80 percent of the discussions you are not in. That
    is what I really fear is that we have a Federal Government that
    can't watch out its own business.
        They are going to come down and they are going to claim
    that they are helping you down here, you poor States can't
    quite figure this out yourself. We didn't figure out on a
    Federal Government. Of course, we didn't figure out Madoff, but
    we are down here.
        But the real deal is the 80 percent elimination out of any
    investigation or any discussions going on internationally in
    which the State Department States regulators would be bypassed,
    and therefore the international markets have access to us.
        You down on the State level, Mr. Ehlert, are you ever going
    to compete over in Europe?
        Mr. Ehlert. No, sir, I am not.
        Mr. Pearce. Yes. So that is the real deal is that we have
    got a few big guys that might compete in Europe, but the power
    and the strength of this State-based economy, this State-based
    insurance system, is going to be bypassed on the guys that were
    here to help you and without our help.
        You just really haven't done any really good oversight of
    yourselves, and we bypass all the things that we in the Federal
    Government haven't done. And at the end of the day, our small
    people are going to be eliminated out of the market because of
    regulations and deals made overseas.
        And I yield back, Mr. Chairman. Thank you.
        Chairman Duffy. The gentleman's time has expired.
        The chair now recognizes the gentleman from Massachusetts,
    Mr. Capuano, for 5 minutes.
        Mr. Capuano. Thank you, Mr. Chairman, and I want to thank
    the panel. I just--couple of comments. I want to reiterate no
    one here is suggest--that I am aware of--is suggesting ditching
    the State-based system. No one here is suggesting that.
        To my knowledge, there are no bills to do that. To my
    knowledge, no member of this committee has suggested that in
    the past or now. So any statements to the opposite of that are
    hyperbole. Now, I know you are all new to Congress. We are good
    at hyperbole, but I--once in a while we have got to cut through
    that so that there is none of that.
        By the way, when it comes to giving up congressional
    responsibilities--not prerogatives--responsibilities, we do it
    all the time, fast track authority. We go out of our way to
    tell the President we don't matter, and we vote for it all the
    time. Not me, but others do. This Congress does.
        When it comes to shooting missiles or deploying U.S.
    military into foreign countries, we all the time allow
    presidents, not just one, to do it, and we don't do anything
    about it. So beware of this whole whoa, it is congressional
    authority, congressional responsibility. We only want that when
    we want it. When it gets tough, we don't want it.
        So the facts matter to me. I want to talk--oh, by the way,
    Bernie Madoff committed a crime and went to jail. AIG did not
    commit a crime. They simply engaged in getting too much risk
    and diverting it around the country.
        That wasn't and still is not criminal. It is bad for the
    economy, but it is not criminal. Bernie Madoff was a criminal.
    AIG was just bad for America. So there are differences.
        I want to talk specifically about one bill, 3762, and I
    want to talk about it because I figure it is a fair statement
    to argue or to discuss what is the appropriate role of the
    Federal Government, what is the appropriate role of the State?
    That is a fair question.
        And I happen to agree that the State-based system, in
    general, works very well, but it did miss the AIG system, as
    did the Federal Government. There is plenty of blame to go
    around. We are all to blame. Fine. We are trying to fix that.
        I also agree the FIO has been too opaque. I totally agree
    the State-based people should have been brought in from day
    one, and I had those arguments with the director then.
        What do you get to hide? You don't have to agree with
    everybody, but why not tell everybody this is what we are
    doing, this is what we are thinking, and this is why,
    especially since he was from the State system. So trying to
    find that balance I think is good.
        I think 3762 is an attempt to do that. But even then, it
    doesn't get rid of FIO. It simply says--it states, very
    clearly, that FIO has to consult with the State systems.
        I would like to ask the panelists to find the word
    ``consult'' in your definition. Does consult mean they can't do
    anything unless you agree? Or does consult simply mean that two
    thoughtful, reasonable, rational adults have to have a
    discussion before the decision is made?
        Mr. Ehlert I would like to start with you.
        Mr. Ehlert. Yes. Consulting, in my opinion, means that the
    two groups are collaborating with each other, explaining their
    various points and views. But the key to the International
    Insurance Standards Reform Act, as you have mentioned, it
    actually right-sizes the FIO.
        None of these two bills eliminate the Federal Insurance
    Office. They are right-sizing their role that the Federal
    Government plays in supervising insurance and maintaining the
    State-based insurance regulatory system.
        Mr. Capuano. But you do realize there is a way to keep
    something alive and gut it from the inside, like some of my
    friends are trying to do to the ACA? They are not trying to
    repeal it anymore because that is too dangerous. But they are
    trying to gut it from the inside.
        And I agree with you. I don't think these bill--or at least
    this bill doesn't do that. But to some people's mind--and I
    want to be clear--that is not the intent.
        Mr. Ehlert. Yes. Well, that is--I don't think these bills
    gut the Federal Insurance Office.
        Mr. Capuano. I would agree with you.
        Mr. Ehlert. I think they right-size what the Federal
    Insurance Office was originally planned to do, and that was to
    provide insurance expertise to this--this governing body, to
    Congress.
        Mr. Capuano. Mr. Schwarcz?
        Mr. Schwarcz. So I believe the bill, in addition to using
    the word consult, requires FIO to get a consensus. Consensus I
    believe is defined as every single member has to agree. So that
    means if a single State does not like the position then FIO
    can't move forward. So I have an objection to the word
    consensus.
        Mr. Capuano. I have got to respectfully disagree, Mr.
    Schwarcz. When the Senate is consulted on various appointments
    they don't all have to agree.
        Mr. Schwarcz. No, I know, but the bill I believe has the
    word consensus in it. So it says it has to consult and then
    achieve consensus, and so that is my concern, that word.
        Mr. Capuano. Consensus as defined by whom?
        Mr. Schwarcz. Well, I believe consensus--I mean, the courts
    would define it, but I believe--
        Mr. Capuano. I have reached consensus with my children when
    I make a final decision.
        Mr. Schwarcz. Well, I would be OK if you define it that
    way.
        Mr. Capuano. My time has expired. Thank you, Mr. Chairman.
        Chairman Duffy. The gentleman's time has expired. I look
    forward to his endorsement and signature on Duffy-Heck. Thank
    you for the kind words.
        The chair now recognizes the gentleman from Florida, Mr.
    Posey, for 5 minutes
        Mr. Posey. Thank you very much, Mr. Chairman. Whenever you
    hear something or whenever I hear something like International
    Standards Act, antennas go up. And as the President might say,
    that is when you expect the United States to bend over for
    everybody else, and so obviously I am sensitive about that.
        Other States are even bigger, but my State Florida is the
    world's 10th largest insurance market. According to the
    National Association's charts, Florida's is bigger than Canada,
    Australia, Netherlands, India, Brazil, Spain, Ireland,
    Switzerland, among many others.
        All the States combined, the United States is obviously the
    biggest market in the world, almost 40 percent. Second place is
    a little over 8 percent. That is Japan. So the obvious
    conclusion or observation I would make is maybe we should be
    moving our standards for the rest of the world, not us
    conforming with their standards.
        I would like your comments, starting with Mr. Ehlert.
        Mr. Ehlert. Thank you, Representative Posey. And I believe
    Texas is the ninth largest insurance market in the world. And
    the United States insurance industry is five to six times
    larger than the European Union, yet we are yielding to European
    regulators to dictate to us what our policy should be.
        I do not think that our bodies, our State form of
    regulation of the insurance industry, which has proven itself
    through two world wars, a Depression, ruled through 9/11,
    through Hurricane Harvey, which we are experiencing now, is
    time-tested and proven.
        This body should make sure that our representatives at an
    international level are negotiating and defending and promoting
    our U.S. regulatory insurance system. And they should also make
    sure that any agreements that our Federal Insurance Office were
    to make would not be in conflict with Federal or State law.
        Mr. Posey. OK. Anyone disagree on the panel?
        Mr. Schwarcz. Well, I have a different perspective, I guess
    not surprisingly.
        Mr. Posey. All right.
        Mr. Schwarcz. My perspective is that it is arrogance for us
    to way, look, this is the way it is going to be done, and we
    are just going to ignore you if you want to do it differently.
        The way the U.S. should work in the international community
    is to seek compromise and to seek understanding of different
    viewpoints. And I think there are good reasons why that
    promotes financial stability worldwide.
        We don't want an AIG coming from another country and
    destabilizing our system. And we want our insurance companies
    to be able to operate internationally.
        So there are very good reasons to be engaged
    internationally, and I think that if we go in internationally
    and say this is the way it is going to be done, we are not
    going to change our system at all, we are not going to admit
    any faults, well then we will be ignored by the international
    community.
        And if that happens, international standards will be
    developed, we will be left out of the room, and eventually we
    may have to implement them when we had no role in playing in
    their developments.
        So I think we need to be engaged.
        Mr. Posey. Yes.
        Mr. Schwarcz. And I think we need to be engaged in a way
    that is constructive and that recognizes even though our State-
    based system is strong, there are indeed some limitations and
    some ways in which it can be made better. And I think that that
    is perfectly consistent with being a defender of State-based
    regulation.
        Mr. Posey. Well, I certainly wouldn't want to be
    politically incorrect and get stuck with 40 percent of the
    world's market.
        Actually I think we are in a pretty enviable position and
    as the President has talked about many times in the trade
    agreements, every time we get into an international agreement,
    it seems like we get the short end of it at the end of the day.
        And so I hope we don't go there. I just can't believe the
    United States needs to construct a one-size-fits-all regulatory
    standard representing some kind of a compromise in the way
    other jurisdictions operate. It is just hard to believe that
    that would be in our best interest.
        Does the Office of International Federal Insurance
    strengthen or reduce the ability of the United States to
    achieve good incomes--outcomes, I am sorry, in international
    standard-setting and trade discussions?
        And we will go back to Mr. Ehlert again.
        Mr. Ehlert. I believe the question was does the Federal
    Insurance Office strengthen the international negotiation
    process for international capital standards?
        Mr. Posey. That is the question.
        Mr. Ehlert. The Federal Insurance Office in the past was
    taking positions on the international capital standard that was
    adverse to our State regulators.
        So to answer your question, I would say no because of the
    lack of coordination and collaboration that Ms. Wade described
    in her opening statement would reflect that the FIO was out
    there trying to do it on their own.
        Mr. Posey. OK. Mr. Means?
        Mr. Means. Oh, I agree totally. I have nothing to add to
    that. I think he is absolutely right.
        Mr. Posey. Thank you, Mr. Chairman.
        Chairman Duffy. The gentleman's time has expired.
        The chair now recognizes the gentleman from California, Mr.
    Sherman, for 5 minutes.
        Mr. Sherman. I would point out that the insurance market in
    California is roughly comparable to that of the United Kingdom
    or China, and why California is deprived of its own seat at the
    table is something we should discuss. Though I would--but what
    we see here over the last 50 years is more and more power in
    the executive branch of the Federal Government.
        The bill before us, one of the two bills, says that
    Congress will have an opportunity to disapprove any agreement
    that is reached.
        Professor Schwarcz, any reason Congress shouldn't have a
    formal way to disapprove the agreement?
        Mr. Schwarcz. No, I don't have any. I don't think it is a
    problem, if that is what Congress wants to do. I do think it is
    a problem if there are procedures that require reporting as the
    negotiation is moving forward, because that undermines
    negotiation. So I think the appropriate way to use--
        Mr. Sherman. You don't think Congress can keep its mouth
    shut and get classified briefings?
        Mr. Schwarcz. No. I think that in almost every other arena,
    the way that international agreements work is you are
    authorized to enter into the agreement or to negotiate the
    agreement. You negotiate the agreement and then--
        Mr. Sherman. But Mr.--Mr.--I know you are focused on
    insurance. We get briefed all the time about negotiations of
    every other international deal, whether it be trade deals. I
    had at least a dozen White House briefings on the Iran deal as
    it was negotiated, so why would this be any different?
        Mr. Schwarcz. Well, I know. I have no problem with
    briefings but my understanding is that this legislation would
    require waiting periods, would sort of essentially require the
    negotiating process to be--to be halted while you are briefed.
        And that is not a good way to negotiate, to say, look, you
    can negotiate but you can only sort of negotiate this much.
    Then you have to go back and get approval.
        Mr. Sherman. Right.
        Mr. Schwarcz. And I think that undermines negotiation. So I
    think it would be perfectly reasonable to say we will give you
    the authority to negotiate a covered agreement, negotiate a
    covered agreement then come back and we will approve it.
        Mr. Sherman. Well, I will ask Mr. Ehlert, is this going to
    prevent negotiation, that Congress gets briefed at various
    stages?
        Mr. Ehlert. Not in my opinion at all.
        Mr. Sherman. Thank you. I want to go on to the other issue.
    While we are here talking about whether FIO should have 5
    employees or 10 employees there seems to be general agreement
    that what could undermine the insurance industry is credit
    default swaps and perhaps the security lending.
        Ms. Wade, how hard is your organization pushing to make
    sure that the companies that don't even call themselves
    insurance companies that engage in credit default swaps become
    regulated insurance companies?
        Ms. Wade. We as State regulators, through the holding
    company acts approve material transactions of insurance
    companies and their non-insurance--
        Mr. Sherman. OK. But let us--
        Ms. Wade --entities that may engage in--
        Mr. Sherman. So you are a non-insurance company. As most of
    the--I mean, I realize the market is down to $10 trillion so
    maybe it is not as dangerous as it once was, but $10 trillion
    is real money.
        Ms. Wade. Right. And we--
        Mr. Sherman. And a lot of that is in companies that don't
    even report to you.
        Ms. Wade. Correct, but we also require insurers to do more
    disclosure around their securities. We are also increasing--
        Mr. Sherman. You are requiring this of insurers.
        Ms. Wade. Yes.
        Mr. Sherman. What about the trillions of dollars of
    companies who are issuing insurance and say they are not
    insurers because they say they are in the credit default swap
    business. I will give you an example.
        If I have a deal where if my car is stolen, they write me a
    check, that is called automobile comprehensive insurance. If
    instead they say I can swap the pink slip of my too old,
    stolen, never-to-be-recovered car for a pink slip of a new car,
    you would still call that comprehensive auto insurance.
        But if I do the same thing on a portfolio, then all of a
    sudden because I don't get cash, I get a portfolio of other
    securities, it is not called insurance. That would have brought
    AIG down. The professor says other things might have as well.
        Professor, why can't we say credit default swap, which is
    insurance. It ensures that you do not have too great a decline
    in the value of your portfolio. Why can't we classify that as
    insurance?
        Mr. Schwarcz. You could define it that way. It is not
    currently defined that way in Federal law. It is defined as a
    derivative because of, I believe, legislation that was passed
    about 17 years ago that I believe it was the Commodities
    Futures Modernization Act.
        So I believe it was defined not to be insurance. And just
    the other point I will make is I think Commissioner Wade's
    point is illustrative of what I see as both the strengths and
    the weaknesses of the State-based system.
        She says, well, we would look at it if there was a
    transaction between that company and the insurance company.
    That is because they are focused on insurance companies. But if
    you are regulating the--
        Mr. Sherman. Well, the--
        Mr. Schwarcz --industry as a whole--
        Mr. Sherman. What we have is a definitional problem.
    Somebody figured out a way to ensure a portfolio in which if
    the insurance becomes activated, they don't write you a check.
    They give you another portfolio, and that rather stupid
    artifice has allowed them to escape insurance regulation.
        And so I have got $10 trillion of insurance through credit
    default swaps that Ms. Wade doesn't even look at. I yield back.
        Ms. Wade. Well, the SEC regulates credit default swaps and
    looking at the entire enterprise of an insurance company,
    holding company, is the way we look at the entire organization,
    the risk that they are taking on.
        Mr. Sherman. Ms. Wade, you miss the point. A lot of this is
    done by companies that are not insurance holding companies. You
    don't even see them.
        Ms. Wade. I understand, but the SEC regulates them.
        Chairman Duffy. The gentleman's time has expired.
        Mr. Sherman. No, they don't.
        Chairman Duffy. The chair now recognizes the Chairman of
    the Subcommittee on Financial Institutions, the gentleman from
    Missouri, Mr. Luetkemeyer, for 5 minutes.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Mr. Means, as we were going through the covered agreement
    process with the previous FIO director, I know that those
    negotiations had a lot of impact and concern to you. And I know
    that now that you have a reinsurance business I understand in
    Europe? And can you tell me what the agreement, excuse me, the
    pros and cons of the agreement at this point? How it is
    affecting you or not affecting you?
        Mr. Means. Sure. First of all, you know, our company does
    about $2 billion in total premium and our reinsurance company
    does about $120 million, so it is a small part of our business,
    but an important part of our business. And some of our
    reinsurance contracts are in Europe.
        We, as you know, took a long time to do that negotiation to
    get that covered agreement to--agreed to. And in the end we did
    support it. So far it seems to be working OK, and we had some
    folks actually this week in Germany. And I think when I get
    back we will have a better feel for how it is working.
        But as you know, before the covered agreement we were--in
    order for us to do business in the country of Germany--we were
    going to have to open up an office there, which, you know, just
    wasn't feasible for us. So we were relooking at probably seeing
    a reduction in our reinsurance operations of 20 percent to 25
    percent that we have been able to overcome now because of that
    covered agreement.
        Mr. Luetkemeyer. I thank you for that and I know that
    during the discussion we had, some of the discussion points
    were made that if there was retribution there was some
    difficulties with our companies being able to do business over
    there that we could also put those constraints on companies
    when they come over here.
        And it seemed again when we made that statement in
    committee and I had that pretty definitively mentioned, there
    was some concern. They were watching what we were doing, and I
    think the point was made that our insurance market is the
    biggest in the world. They are not.
        They listened to us whether they want to acknowledge it or
    not. So, therefore, we need to be able to control our own
    markets and I think it is important that when we negotiate
    internationally that they understand that we are the big boys
    on the block.
        We have the leverage and I understand our negotiators
    understand that they have the leverage. So I think it is
    important that we get those facts out there. Would you agree
    with that, Mr. Means?
        Mr. Means. Absolutely. Matter of fact, I think at the end
    when it came down to getting the agreement I think that is
    exactly what happened is that they recognized that there could
    be, as you said retributions they were going to invoke those
    standards then we were going to look at possibly doing the
    same. And fortunately that got worked out. And--and we are glad
    that it happened.
        Mr. Luetkemeyer. In discussing one of the bills here deals
    with setting up the FIO Office as a part of the U.S. Trade
    International Affairs Office, which deals with trade.
        And I think it may be a good spot for it from a standpoint
    that if you bring back to the table here their authority and
    ability to do things to just international agreements and where
    we have the ability as the bill indicates to provide a yes or
    no, a thumbs are up, a thumbs down on it, I think it gives a
    lot of leverage to that individual.
        What do you think, Mr. Means?
        Mr. Means. Well, I agree. I think there is a role for FIO
    in this process and that is to represent us internationally. I
    mean that is what the purpose was. But we need transparency, we
    need to make sure that they are listening to the NAIC, they are
    listening to State regulators and we are all on the same page.
        They are not just out there on their own versus being a
    part of team USA. I think it is critical that they be a part of
    the team and they get input from the States and from NAIC and
    they listen to us. And I think maybe in the past, some of that
    didn't happen.
        Mr. Luetkemeyer. One of the concerns is that we are
    impacting our domestic companies, but we have a lot of
    companies that deal on an international basis as well. And so,
    always--is the discussion point as to how those companies deal
    with the new rules and regulations that are promulgated.
        And I was curious where everybody--how much impact should
    those companies have on what we accept or don't accept here in
    this country? Because they are the big boys on the block so to
    speak. Yet, if they are willing to accept things that the rest
    is going to hurt the rest of industry, we've got to be very
    careful here. So I just want to answer the question here.
        Mr. Means. I agree with you. I mean, I, you know, I would
    hate to see the, you know, some of the bigger insurers and
    reinsurers dictate to the rest of us what is gonna happen. You
    know, we deal with 20 States from a regulation standpoint and
    we think it works.
        We also had the reinsurance companies, so we had to deal
    with some international regulation. We think that the way the
    State regulation is the way to go. And we think that with FIO
    representing us internationally, being our voice, but getting
    input from us and listening to us is the way to go. And we hope
    they listen to everybody, not just the big insurers.
        Mr. Luetkemeyer. I appreciate that. My time has expired.
        Mr. Chairman, I yield back. Thank you.
        Chairman Duffy. The gentleman yields back.
        The chair now recognizes the gentlelady from New York, Miss
    Velazquez, for 5 minutes.
        Ms. Velazquez. Thank you, Mr. Chairman. My first question
    is for the entire panel. The FIO was created on the title five
    of Dodd-Frank to play an important role in monitoring and
    coordinating Federal and international efforts related to
    insurance.
        In each of your opinions, how have these efforts changed
    under the Trump Administration from the Obama Administration?
    And I also would like to ask you to explain any changes you
    have observed in the management and operations of the FIO under
    the Trump Administration. Mr. Ehlert?
        Mr. Ehlert. Thank you, Representative. I am sorry, I am not
    certain of the distinction between the changes in the FIO
    Office between the Obama Administration and the Trump
    Administration. So I probably cannot comment on your question.
        Ms. Velazquez. OK.
        Mr. Schwarcz. So just to comment. My impression is that FIO
    hasn't been issuing reports or having a voice really, that I am
    aware of, during the--now it has only been a short time, the
    Trump Administration.
        But there was sort of active scrutiny, there were a lot of
    reports being issued in the Obama Administration under Director
    McCraith. And I think many of those reports were really quite
    strong.
        And just to point out a few, there is a very strong report
    on the affordability issue, pointing out that there are issues
    that need to be addressed and saying that further research is
    required. And I am not sure that that is happening at FIO.
        Similarly, there was a report on modernizing State
    insurance regulation that was issued under the Obama
    Administration. And I think that part of the problem is I
    believe we don't have a director right now at FIO, we just have
    an acting director.
        So I think that that really ought to change. We should have
    some permanent, semi-permanent leadership so that the office
    can have some authority.
        The other thing I would just point out is FIO's role was
    never intended just to be international. In fact its very
    first--under Dodd-Frank--its missions are laid out. Its very
    mission is to monitor the domestic industry and to look for
    gaps in insurance regulation that could cause systemic risks.
        Its second is to monitor affordability. So international
    affairs is one component, but it is not the case that that was
    intended to be the sole component to FIO.
        Ms. Velazquez. Thank you.
        Mr. Means?
        Mr. Means. Well, I think in my oral testimony I have
    commented on the fact that over the last few weeks, months, we
    have seen some improvement with the FIO office and we commend
    them for that. It seems to be better cooperation.
        Ms. Velazquez. Ms. Wade?
        Ms. Wade. Also, you know, in my remarks, we have seen
    improvement over the last several months in terms of the
    collaboration on international standard setting and more
    constructive dialog with team USA and a more coordinated effort
    to defend our system in the international arena.
        Ms. Velazquez. OK. Thank you, Miss Wade. I would like for
    Mr. Schwarcz to comment on this, too. So some critics of the
    FIO would like to limit the FIO's role largely to international
    matters.
        But isn't it important for the FIO to monitor and
    coordinate domestic insurance matters so that it might better
    represent the U.S. on the world stage? Miss Wade?
        Ms. Wade. So the Federal Insurance Office is not a
    regulator. And we believe the appropriate role for it is in
    international affairs as a part of the Department of the
    Treasury.
        We believe that that is a constructive role for them to
    coordinate across the Federal Government on international
    insurance issues.
        Ms. Velazquez. Mr. Schwarcz?
        Mr. Schwarcz. Again, you know, I obviously disagree. I mean
    it is not a regulator, that part I agree with. But that doesn't
    mean that it shouldn't have a role to play in monitoring and
    scrutinizing the system.
        Earlier someone had suggested that it is not the case that
    a lot of State-based reforms were driven by Federal scrutiny. I
    would invite you to look at my testimony.
        The accreditation standards, which is the bedrock of the
    State solvency system, is a direct response to Federal
    scrutiny. Risk based capital requirements were a direct
    response to Federal scrutiny.
        The guarantee fund system were a direct response to Federal
    scrutiny. Rate regulation was a direct response to Federal
    scrutiny. The elimination of the ability of insurers to fixed
    rates was a direct response to Federal scrutiny.
        So if you just look historically, it is factually accurate
    to say that the State-based system is a product of Federal
    monitoring and scrutiny.
        Ms. Velazquez. Thank you. Mr. Chairman, I yield back.
        Chairman Duffy. The gentlelady yields back.
        Now the chair now recognizes the gentleman from Illinois,
    Mr. Hultgren, for 5 minutes.
        Mr. Hultgren. Thank you, Chairman Duffy for holding this
    important hearing. Thank you all for being here.
        The State-based system of regulating insurance in the
    United States has worked pretty well and I would say it is
    continuing to work and I especially see it working well in
    Illinois, my home State.
        However, we should also not lose sight of the facts that
    our insurance markets extend beyond our home States and often
    times international markets play a role in determining what
    sort of products our constituents have access to and at what
    price.
        This hearing, I believe is an important opportunity for the
    committee to revisit the new authorities that were provided to
    the Federal Government through to oversee the insurance
    industry as a result of the Dodd-Frank Act.
        Mr. Ehlert, I wonder if I can address my first question to
    you. Federal Insurance Office Reform Act sponsored by Chairman
    Duffy and Mr. Heck require FIO to achieve a consensus with the
    States before advocating or agreeing to positions in
    international forums.
        I wonder, do you believe that this consensus should be a
    simple majority, should it be unanimous, or something in
    between.
        Mr. Ehlert. I think there has to be collaboration among the
    regulators, the NAIC and the Federal Insurance Office. Absent
    of sharing of ideas and opinions with regard to whether
    agreements internationally work.
        The Federal Insurance Office is unable to actually have
    that expertise without the knowledge of the State-based
    insurance regulators who have been doing this for 150 years.
        Professor Schwarcz indicated earlier, if we have all these
    changes that he says have been promoted by the Federal
    Government's scrutiny over the State insurance industry. Those
    changes were done without the requirement of having a Federal
    Insurance Office in place.
        Mr. Hultgren. Thanks.
        Mr. Ehlert. To answer your question, sir--
        Mr. Hultgren. Yes, Mr. Means, do you have any thoughts on
    that?
        Mr. Means. Well, I would agree totally. I think I disagree
    that every change that has happened in the insurance business
    is a result of some Federal idea somewhere.
        I mean there has been a lot of changes in the insurance
    business that over my 40 years in the business that would have
    been not as a result of Federal involvement in any way.
        And, you know, I will just say this, sometimes the Federal
    involvement can work really as a detriment, you know, we at
    Shelter--at Shelter Bank and we came under the--we were under
    the Office of Thrift Supervision and we came under the
    direction of the Federal Reserve as a result to Dodd-Frank and
    very successful bank.
        A small bank, $120 million in assets, servicing small
    communities throughout our 20 States. And when the Federal
    Reserve came in and decided that they were going to take over,
    they basically said we are gonna--we are going to regulate, Mr.
    insurance company, through the bank. And we said no thank you.
        So in a lot of these communities where large banks would
    pull out of, and there was no bank. We were there to be able to
    offer a service to our policy holders and our agents. In result
    to the Federal involvement, we couldn't do that. It just didn't
    make sense. Our expenses were gonna increase $1 million a year
    as a result of that.
        Mr. Hultgren. Miss Wade, how would you interpret the words
    consensus and how could FIO work with NAIC to help achieve this
    agreement?
        Ms. Wade. Sure. So consensus and consultations doesn't mean
    we are gonna always agree. And we have a long tradition of
    collaborating across the 56 commissioners and a process for us
    to build a consensus position.
        No one State can veto a position. We have to come together
    and come up with positions. So I believe consensus is working
    together. And that does not mean we will always agree.
        Mr. Hultgren. Yes. Following up, Miss Wade, I have heard a
    lot of frustration from the insurance industry. Especially
    smaller providers about duplicative data calls from FIO and the
    NAIC. Why do you think this is the case?
        Dodd-Frank states that before collecting any data or
    information, FIO shall coordinate with each relevant Federal
    agency and State insurance regulator and any publicly available
    sources.
        So wondering if you could talk about why you think there is
    this duplicative data calls? And then also, is NAIC committed
    to coordinating with FIO to avoid redundant or duplicative data
    requests?
        Ms. Wade. The NAIC is working very closely with FIO on the
    TRIA data call to make sure that we are working together to
    avoid as much duplication as possible and be as coordinated in
    our data collection.
        We are committed to working with our Federal partners in
    reducing the administrative burden on companies. But making
    sure that we get the information that we need in our role, in
    our different roles.
        Mr. Hultgren. And last, in my last few seconds here. Are
    there any instances under which it might make sense for FIO to
    lead these efforts. For example, the Terrorism Risk Insurance
    Program, TRIA, is administered by FIO.
        So it would seem practical for them to use their expertise
    in this instance. Do you agree with that? Or are there other
    instances where you think FIO should take the lead?
        Ms. Wade. I think we should be coordinated together to the
    extent possible.
        Mr. Hultgren. Great, thank you.
        Thanks, chairman, I yield back.
        Chairman Duffy. The gentleman yields back.
        The chair now recognizes the gentleman from California, Mr.
    Royce, for 5 minutes.
        Mr. Royce. Thank you, Mr. Chairman. So at the outset I
    would really like to thank Professor Schwarcz here for setting
    the record straight on AIG.
        From a regulatory standpoint, there were failures at both
    the State and the Federal level. And using capital from their
    insurance subsidiaries, they took from the subsidiaries with
    the approval.
        With the approval of various State insurance regulators and
    the securities lending division in tandem with the financial
    products unit, thus put at risk the entire company. But it
    turns out it wasn't just the entire company put at risk.
        It turns out it was the broader financial system as well,
    that was put at risk. So Mr. Chairman, without objection, I
    would like to submit for the record, an article penned by
    Hester Pierce, it was for the American Banker. It is entitled
    ``AIG's Collapse, the Part Nobody Likes to Talk About.''
        And I think this hearing today proves that memory is very
    fleeting. Memory in terms of the failure at the Federal level
    and the failure at the State level with respect to regulation
    here.
        Chairman Duffy. Without objection.
        Mr. Royce. Under the Constitution and the rulings of the
    Supreme Court, insurance is interstate commerce, and therefore
    subject to Federal regulation.
        Only through an act of Congress have the States been able
    to maintain the power to regulate insurance. And the Federal
    Government has acted with the support of the Congress on many
    occasions.
        When we had a flood insurance crisis, the Federal
    Government established the National Flood Insurance Program.
    When we had a terrorism risk insurance crisis, the Federal
    Government established Terrorism Risk Insurance Program. And we
    had a major financial crisis, the Federal Government
    established the Federal Insurance Office.
        According to the work of the FIO annual report from last
    year, the failure in the long-term-care insurance market and
    the collapse of entreaty may be the next shoe to drop.
        It is clear that the need for insurance expertise at the
    Federal level and a unified voice on international insurance
    matters is just as strong today as it was a decade ago.
        The fact is, that States cannot uniformly act when there is
    a crisis, nor can they speak with one voice on behalf of other
    States or the Federal Government. That is just the practical
    reality here that we have experienced over and over again.
        The NAIC has tried to fill this void, sometimes
    unconstitutionally tried to fill the void. The ORSA
    implementation that was lauded earlier was accomplished only
    through the use of incorporation by reference, a practice State
    legislators have severely criticized.
        The NAIC State accreditation program requires its own
    handbooks, manuals and model legislation to be incorporated by
    reference into States' law. The NAIC handbooks and manuals are
    then amended frequently, frequently without approval by State
    representatives.
        Maybe the question we should be asking today is how a
    private corporation--how could a private corporation have
    evolved into being able to effectively dictate nearly the
    entire insurance regulatory structure in the U.S.?
        Hopefully, Mr. Chairman, we can have meetings on this in
    the future, have some hearings on this subject, I would hope.
        And I will yield back the balance of my time, thank you.
        Chairman Duffy. The gentleman yields back.
        And the chair now recognizes the gentleman from Washington,
    Mr. Heck, and a great co-sponsor of this package of bills, for
    5 minutes.
        Mr. Heck. Do you have to get unanimous consent so I can
    proceed (sic) so you don't interrupt me again, Mr. Chairman?
        Chairman Duffy. I will give you about 30 seconds here, then
    I will jump in on you.
        Mr. Heck. Thank you, sir.
        Chairman Duffy. You are recognized.
        Mr. Heck. I want to go back to something I mentioned in my
    opening statement about how to protect State-based regulation.
    I am recollecting that banks were chartered and supervised by
    States long before the first Federal bank regulators came
    along, I think in the 1860s. But, of course, today the dual
    banking system tilts more and more heavily toward Federal
    power.
        Similarly, securities were first regulated under blue sky
    laws decades before the Securities Act of 1933. And, of course,
    today the SEC has preempted nearly all State securities
    regulation.
        The Dodd-Frank Act rolled back a few preemptions of State
    mortgage regulations, but the general trend is a one-way
    ratchet toward more and more Federal imposition on State
    regulation.
        For this committee, there is really only one area that has
    avoided the Federal power grab and that is, of course,
    insurance. But both before and after the crisis, the Treasury
    Department tried to create Federal regulation of insurance.
        Now, I would argue actually in the instances that I had
    alluded too with increased Federal regulation that came about
    as a result of some wholesale collapse in the functioning of
    the market, such has not been the case in the area of
    insurance.
        And I would like to ask each of you, starting on the end,
    your thoughts quickly, please, on how we can protect against
    this kind of inevitable tendency, this inevitable trend, for
    increasing Federal role where the problem statement isn't,
    frankly, very compelling?
        Mr. Ehlert. I think these two bipartisan bills take a long
    step or a big step in protecting that from happening.
        Mr. Heck. On behalf of Mr. Duffy and myself, I thank you.
        Mr. Ehlert. Also Representative Heck, what we have to do is
    have advocation and promotion of our State-based and Federal
    regulatory systems of--which monitor insurance at an
    international level.
        We cannot have conflicting laws at the Federal level that
    conflict with a proven functional State system regulatory body.
    So Congress needs to scrutinize what our Federal agencies are
    doing to make sure that we are not passing laws or rules or
    regulations that are in conflict with or duplicative of what
    our State insurance bodies, regulatory bodies, are already
    doing.
        Mr. Heck. Thank you, sir.
        Professor Schwarcz?
        Mr. Schwarcz. I would say that it is not--look, if people
    were advocating getting rid of the State-based system, we could
    have that conversation. But to me the present dynamic we have
    is a healthy one and the Federal Government is playing some
    role in monitoring but not regulating and playing some role
    with respect to systemic risk.
        But the appropriate level of regulation depends on the
    nature of the issue. If they are local issues, they should be
    regulated at the State level. But if we are dealing with the
    health of financial system, that needs to be regulated at the
    Federal level.
        It doesn't make sense to have individual States protecting
    our broader financial system. And so I think that one needs to
    pay attention to the nature of the issue.
        Mr. Heck. Thank you sir. I would be more receptive if I
    didn't think the system was working quite well to protect
    consumers in my State.
        Mr. Means?
        Mr. Means. Yes, and I think these two bills will go a long
    ways to doing what you suggested there and certainly appreciate
    your sponsorship. You know, you got 150 years of track record
    of it working and why lay another layer of bureaucracy? As I
    said in my oral statement, it is just not needed.
        In my opinion, it is working at the State level. We deal
    with 20 different States and, you know, they are all different,
    but that is OK because they are close to the consumer and they
    know what is going on. And that is what makes it work, in my
    opinion.
        Mr. Heck. If it ain't broke, don't fix it.
        Mr. Means. There you go.
        Mr. Heck. Ms. Wade?
        Ms. Wade. We believe that these two pieces of legislation
    will help to bolster the State-based system that the Federal
    agency should be accountable just as State insurance
    commissioners are to their governors and legislatures.
        That the Federal agencies are responsible to Congress and
    that, you know, when we advocate outside of the United States
    on international standards, this is recognition of how our
    U.S.-based system works.
        Mr. Heck. Thank you.
        I don't have a lot of time left, but I do want to observe
    with all due respect, Professor Schwarcz that if I were to
    restate your testimony as I understand it, it may sound a
    little bit, well, frankly, like parody, but I think you were
    literally saying that every good thing that has happened in
    State regulation of insurance has happened because of the
    Federal Government. Really?
        Mr. Schwarcz. Well, if you actually read the testimony and
    look at every single example I give, I would challenge you to
    point out any single example I have that was not directly
    triggered by Federal scrutiny. So--
        Mr. Heck. So--
        Mr. Schwarcz --so you can characterize it, but if you
    actually want to look--
        Mr. Heck --but you are making my point, sir, that if all
    the good things that have happened, which I strongly contest,
    have been a result of Federal pressure, why do we need an
    increased role in a specialized department?
        And it is my time, sir, and it is up, and I yield back. Mr.
    Chairman, thank you.
        Chairman Duffy. The gentleman yields back.
        The chair now recognizes the gentleman from Pennsylvania,
    Mr. Rothfus, for 5 minutes.
        Mr. Rothfus. Thank you, Mr. Chairman. Mr. Means, I wanted
    to thank you for calling attention in your testimony to the
    issues that are arising out of the Fed supervision in the
    insurance industry. This is an issue that I have been following
    very closely, and I am currently working on legislation to
    address it.
        As you noted, Dodd-Frank gave the Fed new supervisory
    authority over certain insurers, including those that have
    depository institution affiliates. You testified that you
    closed your bank because it was not cost effective to deal with
    the Fed's examinations.
        I know many other insurers have done that as well. In an
    era where banks are closing and consolidating and affordable
    financial services products are becoming less available for
    many Americans, and we are seeing no new banks being created,
    this dynamic is especially troubling.
        You were discussing with Representative Hultgren in
    response to an inquiry about how your compliance costs affected
    your operations. And I am wondering if you might be able to
    elaborate on that a little bit? As you have made the decision
    to close your bank, was it just compliance costs? Was there
    other issues?
        Mr. Means. No. It really was the fact that our costs were
    going to increase by about a million dollars a year where you
    are going to have to hire approximately four to five additional
    people at our bank. Approximately had 20 employees in it, so we
    are going to have to increase our staff by about 25 percent as
    a result to meet these compliance regulations.
        It was a marginally--it was a successful bank, a small
    bank. But it was filling a void in communities where large
    banks had pulled out of and our agents had a relationship with
    customers where they could offer banking service.
        And when the Federal regulators came in they just made it
    very clear to us that they were going to try to regulate the
    insurance company through the bank. And in my opinion that
    didn't make sense. You know, we deal with State regulators and
    we didn't need another layer of bureaucracy on top of that in
    having to deal with the Fed.
        Mr. Rothfus. Do you believe that there are any consumer
    benefits to the Federal Reserve regulation of insurance holding
    companies?
        Mr. Means. It was hard for me to see it. I do not believe
    there was. And I am not trying to criticize those employees
    that came. They were just there doing their job. But I saw no
    advantage, any help that it was going to give the consumers by
    doing what they were doing.
        Mr. Rothfus. Commissioner Wade, as you know Dodd-Frank
    brought insurance companies that own thrifts under Fed
    supervision. As a result, the number of insurance companies
    that own thrifts has dropped dramatically from over 25 to about
    a dozen today.
        Of those companies many of them has an insurance company as
    their top-tier holding company which is supervised by both the
    Federal Reserve and the State insurance department.
        Under McCarran-Ferguson, the States are the primary
    supervisors of the business of insurance. While I understand
    that the Fed is working hard to fulfill its statutory mandate,
    I believe that the last few years have demonstrated that we can
    do much better in terms of regulatory efficiency and returning
    more authority back to the States.
        Would you agree that we should work together to examine
    this regulatory system to create maximum regulatory efficiency?
        Ms. Wade. Yes. We would agree to the extent that we can
    improve regulatory efficiency. Our job, first and foremost, is
    to protect the consumer and undue cost of regulation has an
    impact on consumers.
        But we need to make sure that these companies are solvent
    and doing what they are supposed to be doing. And so the
    Federal Reserve has been coordinating with us as we develop our
    group capital standard and as they build their building block
    approach so that we can try to be as efficient as possible
    together and not duplicate data collection efforts as we do
    each of our roles in the regulatory space.
        Mr. Rothfus. And thinking about answers to the issue, would
    you support a solution that allowed the Fed to have backstop
    regulatory authority of insurance savings and loan holding
    companies so that the agency could step in under certain
    circumstances but designate into States as the day-to-day
    supervisor of these insurance companies?
        Ms. Wade. We support coordination between the agencies. We
    believe under the Holding Company Act we have very broad powers
    to regulate insurance holding companies.
        Mr. Rothfus. Mr. Ehlert, as you know, we signed the USEU
    covered agreement on September 22. Like many members of this
    committee on both sides of the aisle, I had a number of
    concerns about not just the outcome but the process for
    negotiating and improving a covered agreement.
        Looking back on the most recent covered agreement, what are
    your thoughts about how the process worked?
        Mr. Ehlert. Well, I had general concerns about covered
    agreements under the current law and how they have the ability
    to preempt State law. Also, currently Congress does not have
    any disapproval process of those agreements.
        The International Insurance Standards Act, bipartisan act
    proposed here today, would provide some disapproval process for
    Congress. That needs to be in place.
        We don't want to be abdicating what our companies or the
    insurance companies here are going to be responsible to to the
    insurance regulators abroad. We want our State legislators in
    Congress to be making those laws that will govern us.
        Mr. Rothfus. So in referencing the legislation we have
    under consideration, it is your opinion that the Duffy-Heck
    bill would address some of the problems that became apparent in
    the E.U.-U.S. agreement?
        Mr. Ehlert. Definitely. Yes, sir.
        Mr. Heck. I yield back, Mr. Chairman. Thank you.
        Chairman Duffy. The gentleman yields back.
        Those are all of the members that we have to ask the panel
    questions. I want to thank you all for your testimony and your
    time and your statements that you have offered to our
    subcommittee and the wisdom that you provide.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        [Whereupon, at 11:48 a.m., the subcommittee was adjourned.]

                                A P P E N D I X

                                October 24, 2017
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