United States and European Union negotiators say they have reached an agreement on reinsurance and insurance regulation. The agreement covers three areas of insurance oversight: reinsurance, group supervision and the exchange of insurance information between regulators.
According to the negotiators, U.S. and EU insurers operating in the other market will only be subject to oversight by the regulators in their home jurisdiction. For the United States, the agreement preserves the primacy of the U.S. regulators’ oversight of U.S. insurance groups while for the EU, it preserves the primacy of EU oversight of EU insurance groups.
The agreement calls for an end to collateral and local presence requirements for EU and U.S. reinsurers.
The negotiators say that the agreement is “balanced, in the mutual interest of both the U.S. and the EU, and provides meaningful benefits for U.S. and EU insurance consumers and for U.S. and EU insurers and reinsurers that operate in both markets.”
In November 2015, the U.S. Department of the Treasury and the Office of the U.S. Trade Representative (USTR) announced their intention to begin negotiating a covered agreement with the EU. The talks began in February. U.S. and EU representatives also met in July, May and September, 2016.
The agreement is known as a covered agreement, which is an agreement between the United States and one or more foreign governments, authorities or regulatory entities, regarding prudential measures with respect to insurance or reinsurance.
European reinsurers and regulators have wanted the U.S. to lift reinsurance collateral requirements on foreign reinsurers and treat them like U.S. reinsurers. European reinsurers and Lloyd’s of London syndicates complain they are disadvantaged compared to American competitors by the additional capital and collateral requirements of some states. They note that they must also now comply with new EU solvency [Solvency II) rules.
The agreement calls for the elimination of collateral and local presence requirements for EU and U.S. reinsurers.
U.S. and EU insurers operating in the other market will only be subject to worldwide prudential insurance group oversight by the supervisors in their home jurisdiction, the announcement said.
The limitations on worldwide group oversight outside of the home jurisdiction include limits on matters involving solvency and capital, reporting and governance. Supervisors however preserve the ability to request and obtain information about worldwide activities “which could harm policyholders’ interests or financial stability in their territory.”
The agreement encourages insurance supervisory authorities in the United States and the EU to continue to exchange supervisory information on insurers and reinsurers that operate in the U.S. and EU markets.
The final legal text of the agreement was not released but has been given to Congress as required by the the Dodd-Frank Act. The European Union approval process involves the Council and the European Parliament.
Michael McRaith, Director of the Federal Insurance Office (FIO) within Treasury, has called negotiating a covered agreement with the European Union “a critical step toward leveling the playing field for American insurers and reinsurers.”
The American Insurance Association (AIA), the American Council of Life Insurers (ACLI) and the Reinsurance Association of America (RAA) welcomed the agreement in a joint statement:
“This agreement, which was reached on January 13, seeks to resolve significant insurance and reinsurance regulatory issues for companies doing business in both jurisdictions. We have long supported the covered agreement process and look forward to reviewing the details.
“We thank the U.S. and European Union parties who were involved in the negotiations for advancing this important initiative. We also applaud state regulators for their invaluable contributions and their continuing commitment to U.S. policyholders.”