Insurers say they are encouraged by the most recent developments in the covered insurance/reinsurance agreement negotiations between the United States and European Commission.
Following the latest round of the talks, held Sept. 21-22 in Washington, D.C., the United States and European Union released a joint statement citing progress.
“Both sides continued to discuss in good faith matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision, including collateral,” the joint statement said.
The statement said U.S. and EU representatives “made progress on key issues, and identified next steps toward a possible completion of negotiations in the near future.”
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, 2016 and in May, 2016.
Steve Simchak, director of International Affairs for the American Insurance Association (AIA), said his group’s member companies are encouraged by the latest round.
“It is our hope that an agreement will be reached soon so that U.S. insurers will no longer face discriminatory measures that are increasingly distorting insurance trade with the EU,” Simchak said.
A covered agreement 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 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 will treat U.S. insurers fairly and recognize the U.S. regulatory scheme. Solvency II provide a process for non-EU countries to be determined to be “equivalent” to the Solvency II regime.
Simchak said AIA is convinced that resolving these issues through a covered agreement is the best option for regulators and industry on both sides of the Atlantic. “In the meantime, we hope that regulatory authorities will recognize that a process is underway and act accordingly as they implement Solvency II,” he added.
State insurance regulators and some insurers are concerned that a covered agreement could potentially 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 has been adopted by 32 states (about 66 percent of the market).
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.
*This story appeared previously in our sister publication Insurance Journal.