Trade representatives for the United States and the European Union, who met May 24 and 25 to negotiate a bilateral covered agreement on regulations for insurers and reinsurers, on Friday issued a joint statement indicating they have not reached a final agreement but that they will continue their efforts.
“U.S. and EU representatives are committed to pursuit of an agreement that will improve regulatory and supervisory treatment for insurers and reinsurers operating on both sides of the Atlantic. Both sides are considering next steps to ensure advancement of the negotiations,” the statement said.
The joint statement said both sides agreed to “continue in good faith to pursue an agreement on matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision, including collateral.”
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 European Union. U.S. and EU representatives first met in Brussels in February 2016.
A covered agreement is an agreement between the U.S. and one or more foreign governments, authorities or regulatory entities regarding prudential measures with respect to insurance or reinsurance.
European reinsurers and regulators want 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.
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.”
U.S. insurance groups want assurances that the EU under its Solvency II regulations will treat U.S. insurers fairly and that there will be U.S.-EU mutual recognition of each other’s regulatory schemes. Solvency II provide a process for non-EU countries to be determined to be “equivalent” to the Solvency II regime.
“One system should not be imposed on the other and U.S. companies should not be disadvantaged in Europe,” said Bob Woody, vice president of policy for the Property Casualty Insurers of America (PCI).
The American Insurance Association (AIA) thinks a covered agreement is vital.
“As Solvency II continues to be implemented, it is becoming ever clearer that we not only need a successful outcome of the covered agreement negotiations, we need it to be reached as quickly as possible,” said Steve Simchak, director of International Affairs for the AIA.
Simchak said regulatory friction between the U.S. and EU is not in anyone’s interests. “Likewise, any discriminatory treatment of U.S. insurers is very troubling. The good news is that the covered agreement can be the process through which fair treatment of each other’s insurers is affirmed, and can foster regulatory cooperation between our two jurisdictions and other jurisdictions in the future,” he said.
The National Association of Mutual Insurance Companies (NAMIC) has been more cautious about the covered agreement talks, expressing concerns that if other issues are allowed to be injected into the talks, any agreement could ultimately undermine the functional state regulators.
“If this agreement is viewed as the first in a series of attempts to subvert the authority of state regulation through preemption, it might be seen as a dangerous precedent,” Jimi Grande, senior vice president of federal and political affairs for NAMIC, said last November when Treasury announced it intended to pursue an agreement.
“The U.S. has the power and influence to demand equivalency for our state-based insurance regulatory regime and NAMIC encourages our U.S. officials to use all means necessary to avoid regulatory changes and market disruptions due to self-serving pressure from abroad,” he said.
State insurance regulators and some insurers are concerned that a covered agreement could potentially preempt state law and undermine the U.S. system of state regulation of insurance. The National Association of Insurance Commissioners (NAIC) believes states should continue to handle the situation through its model law process. The NAIC has a model law that eases the collateral requirements for foreign reinsurers that about 32 states (about 66 percent of the market) have adopted.
The NAIC has said it has assurances that state regulators will have “direct and meaningful participation” in the U.S.-EU discussions. The administration has promised it will consult with Congress and state regulators throughout the negotiation process.
Why a Covered Agreement Makes Sense for Global Insurers: News in late November that the U.S. Treasury and U.S. Trade Representative planned to negotiate a covered agreement on insurance with the European Union was music to the ears of Patricia Henry, executive vice president of Global Government Affairs for Chubb. In this interview with Carrier Management in January, she explained what global insurers see as the key benefits.
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