A long road to a level playing field for reinsurance regulation in the United States
Negotiations to commence to establish nationally uniform rules for reinsurance collateral requirements
Reinsurers and regulators from the European Union and elsewhere, as well as many parties in the United States, have for a long time been frustrated with the lack of uniform reinsurance collateral requirements across the United States.
In 2011, the National Association of Insurance Commissioners (NAIC) amended its Credit for Reinsurance Model Law and Regulation to allow non-US reinsurers from “qualified jurisdictions” (currently, Bermuda, France, Germany, Ireland, Japan, Switzerland and United Kingdom) to become “certified reinsurers” and therefore be eligible to post less than 100% reinsurance collateral based on their ratings. However, about a third of the states have not adopted the amended models yet and the states that have adopted the models have not done so consistently, which has led to ongoing dissatisfaction particularly among non-US reinsurers and regulators.
However, 2016 will see the US Treasury and the US Trade Representative (USTR) begin negotiations for a “covered agreement” regarding reinsurance collateral and other insurance regulatory matters with the European Union. While this development will be broadly welcomed, the details of the proposed covered agreement are yet to be determined, and obstacles remain including the opposition from the NAIC and the states to the perceived (further) federalization of insurance regulation in the United States. It is likely that the negotiations between the United States and the European Union will last the entire year.
While other jurisdictions such as Bermuda, Japan and Switzerland can be expected to seek commencement of negotiations for their own covered agreements with the United States, a key US goal is for the US insurance regulatory system to be deemed equivalent by the European Union for Solvency II, which will lead the US Treasury and USTR in 2016 to focus primarily, if not exclusively, on an agreement with the European Union.