The aim of the agreement is to enable better co-operation between the EU and US markets, and it covers three areas:
- Reinsurance: the principle behind the provisions on reinsurance is that reinsurers domiciled in either the US or the EU should not, when operating in the other jurisdiction, be subject to collateral and local presence requirements which are more rigorous than those imposed on local reinsurers. Therefore, under the agreement the US has committed to encourage US states to reduce and eventually remove the requirement for EU reinsurers to post collateral when reinsuring US cedants; and the EU has committed to remove restrictions on EU cedants obtaining reinsurance from US firms domiciled in US states, where the regulatory requirements are not deemed to be equivalent to Solvency II.
- Group supervision: US and EU (re)insurers will only be subject to worldwide prudential supervision by their respective domestic supervisory authorities.
- Exchange of information between supervisors: the EU and the US will encourage their own supervisory authorities to share information on re/insurers operating in both markets.
In order to ensure the proper implementation of the agreement, a joint committee will be established and the agreement envisages a consultation process to deal with any differences which arise.
The next step is for the European Parliament and Council formally to give official consent to the agreement as required by Article 218 of the Treaty on the Functioning of the European Union. The Covered Agreement itself provides that it will “enter into force seven days after the date the Parties exchange written notifications certifying that they have completed their respective internal requirements and procedures, or on such other date as the Parties may agree.” However, the agreement is now in a phase of provisional application where it is hoped that certain parts of the agreement, in particular those governing group supervision and the establishment of a joint committee, will be acted upon swiftly. It is acknowledged on both sides of the Atlantic that it will take time for all the provisions in the agreement to take effect and the aim is for it to be fully implemented, on both sides, five years after signature.
While the signing of the agreement has been widely welcomed in the insurance markets on both sides of the Atlantic, when the UK leaves the EU it would need to negotiate an agreement on similar terms with the US, if it wishes to enjoy these benefits.