[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
                           
                           

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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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