The EU and the US have concluded an agreement on insurance and reinsurance prudential matters which will remove the requirement for international reinsurers to post collateral, such as placing assets as security against future reinsurance liabilities, for example a letter of credit, when reinsuring US risks thereby facilitating trade in reinsurance on both sides of the Atlantic. The agreement also implements measures to remove the restrictions which had been placed on US firms as a consequence of US states not being approved as "equivalent" to Solvency II. Non-EU firms may be able to calculate their solvency positions using local rules if their jurisdiction is deemed "equivalent".
It has taken nearly two years of negotiations to achieve this agreement, which covers three areas:
- Reinsurance: as mentioned above, the requirement for international reinsurers to post collateral when reinsuring US risks will be eliminated. The consistent application of prudential rules in both markets should lead to enhanced consumer protection.
- Group supervision: US and EU (re)insurers will only be subject to worldwide prudential supervision by their respective domestic supervisory authorities. Some limitations will be imposed on this in relation to matters concerning solvency and capital, reporting and governance.
- Exchange of information between supervisors: the EU and the US will encourage their own supervisory authorities to cooperate in exchanging information on companies that operate in the respective other markets.
Some industry participants have taken a cautious approach to the agreement. The National Association of Insurance Commissioners said that it would be thoroughly reviewing the agreement “to ensure consumer protections are not compromised”. It seems unlikely that the agreement would do this, directly or indirectly, but from the NAIC’s perspective, the agreement is a means for forcing “foreign regulations on US companies”, and therefore of significant concern.
However, the American Council of Life Insurers and the Reinsurance Association of America both welcomed the agreement, identifying that the reduced regulatory requirements for US (re)insurers would benefit consumers and economies and help to support bilateral trade. Similarly, the International Underwriting Association welcomed the news, saying that “a more level playing field can now be established between EU and US reinsurers”.
The US Congress and the EU will need to approve the agreement formally. Congress was provided with the final legal text of the agreement on 13 January 2017 and the EU Commission will involve the Council and the European Parliament in order to execute the agreement.
A regulatory system which works positively for (re)insurance companies in both the US and the EU should encourage competition but in light of Brexit, the UK will at some point in the future need to form its own separate agreement on these terms if it is to benefit from the presence of US (re)insurers.