US insurers and reinsurers will now be able to compete in EU markets without having to meet Solvency II requirements, after the completion of a long-mooted covered agreement between the US and the EU.
The US Treasury and the Office of the US Trade Representative (USTR) completed negotiations with the EU on 13 January.
Leigh Ann Pusey, president and CEO of the American Insurance Association, commented: “We believe that [the covered agreement] is both a win for US insurers and reinsurers competing in the EU and a win for the US state-based system of regulation.”
The agreement provides a mutual agreement of prudential supervision in the EU and the US, which will eliminate the increasing barriers to US groups operating in Europe.
Pusey added: “In recent months, US insurance groups with operations in Europe have increasingly become subject to discriminatory prudential measures due to the implementation of Solvency II.”
Under the agreement, EU supervisors will acknowledge and affirm the US insurance regulatory framework, promising to allow US insurers and reinsurers to compete in their markets without the regulations being imposed on them under Solvency II. In exchange, EU insurers and reinsurers will receive fair reciprocal treatment and be able to compete in US markets.
The agreement covers three areas of prudential insurance oversight, including reinsurance, group supervision and the exchange of insurance information between supervisors.
According to a joint statement from EU and US representatives, insurers operating in the other market will only be subject to worldwide prudential insurance group oversight by the supervisors in their home jurisdiction.
The statement said: “The limitations on the exercise of worldwide group oversight outside of the home jurisdiction include limits on matters involving solvency and capital, reporting, and governance. Supervisors nevertheless preserve the ability to request and obtain information about worldwide activities, which could harm policyholders' interests or financial stability in their territory.”
The US Treasury’s Federal Insurance Office and the USTR will now consult with and submit the agreement to four congressional committees, in accordance with the Dodd-Frank Act to gain authority for the covered agreement.
Representative Richard Neal of the House ways and means committee, which will scrutinise the covered agreement, promised to ensure that the deal successfully addresses “EU discrimination against the US insurance and reinsurance industries”.
The agreement will then become effective 90 days after that date.
US Treasury secretary Jacob Lew commented: “The covered agreement enhances protections for US insurance consumers and increases opportunities for US insurers and reinsurers. We congratulate all involved for an agreement that serves the best interests of both the US and the EU.”
In October, the International Underwriting Association (IUA) warned that improvements in the efficiency of reinsurance regulation were at risk of being undone if a covered agreement between Europe and the US was not reached.
The association suggested that the covered agreement could solve the problem and result in zero collateral on both sides.
In a statement, released in October, Dave Matcham, chief executive of the IUA, said: “A lack of mutual recognition between regulatory regimes on each side of the Atlantic is causing problems and this could be an ideal way of solving them. It could potentially allow the US to be recognised as Solvency II equivalent and speed up the process of reducing US collateral requirements for international companies.”
“A covered agreement deal, therefore, has a great deal of appeal. It is vitally important that industry representatives, regulators and federal negotiators in the US and Europe all work together to ensure that global regulation can work as effectively as possible.”
Following the covered agreement, Cristina Mihai, head of prudential regulation and international affairs at Insurance Europe, said:“Insurance Europe welcomes the recent conclusion of the bilateral agreement on reinsurance and insurance between the EU and the US, and supports the provisions foreseeing the removal of the discriminatory collateral requirements that EU reinsurers were subject to when placing business in the US."
Mihai added: "Insurance Europe has been very supportive of the EU-US regulatory dialogue and the negotiations of a bilateral agreement on reinsurance and insurance led by the European Commission, and believes the recent conclusion demonstrates the strength of the relationship between the EU and the US."
