The U.S. Treasury Department and the Office of the U.S. Trade Representative said they will sign the bilateral agreement between the United States and the European Union regarding regulation of insurance and reinsurance.
In addition to signing the so-called covered agreement in the coming weeks, the Trump Administration said it also plans to issue a policy statement on implementation.
The Treasury statement called the pact, which was negotiated by the Obama Administration in talks that began in 2015, “an important step in making U.S. companies more competitive in domestic and foreign markets and making regulations efficient, effective and appropriately tailored.”
The Treasury statement also said the bilateral agreement “benefits the U.S. economy and consumers by affirming America’s state-based system of insurance regulation, providing regulatory certainty, and increasing growth opportunities for U.S. insurers.”
The agreement— which was announced on January 13 in the final days of the Obama Administration— addresses three areas of insurance oversight: reinsurance, group supervision and the exchange of insurance information between regulators.
The agreement is known as a covered agreement, which 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.
According to the negotiators, U.S. and EU insurers operating in the other market will only be subject to oversight by the regulators in their home jurisdiction. For the United States, the agreement preserves the primacy of state regulation the U.S. of U.S. insurance groups while for the EU, it preserves the primacy of EU oversight of EU insurance groups.
The agreement calls for an end to collateral and local presence requirements for EU and U.S. reinsurers.
European reinsurers and regulators have wanted 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.
The limitations on worldwide group oversight outside of the home jurisdiction include limits on matters involving solvency and capital, reporting and governance. Supervisors however preserve the ability to request and obtain information about worldwide activities “which could harm policyholders’ interests or financial stability in their territory.”
The agreement encourages insurance supervisory authorities in the U.S. and the EU to continue to exchange supervisory information on insurers and reinsurers that operate in the U.S. and EU markets.
In January, the Treasury Department released a fact sheet on the agreement and said the final legal text of the agreement had been given to Congress as required by the Dodd-Frank Act.
The European Union approval process involves the Council and the European Parliament.
Michael McRaith, the former director of the Federal Insurance Office (FIO) within Treasury who left his post a week after the agreement was announced, has called negotiating a covered agreement with the European Union “a critical step toward leveling the playing field for American insurers and reinsurers.”
Insurers and Regulators
Several major insurance organizations including the American Insurance Association (AIA), the American Council of Life Insurers (ACLI) and the Reinsurance Association of America (RAA) welcomed the agreement in January, as did the International Underwriting Association, which represents wholesale re/insurance companies in the London market.
However, the National Association of Mutual Insurance Companies (NAMIC) has not been as welcoming of a covered agreement. It has called the pact “a proposed solution to an invented problem – the question of European regulators deeming our regulatory system equivalent.”
State insurance regulators have also expressed concern that a covered agreement could potentially undermine the U.S. system of state regulation of insurance. The National Association of Insurance Commissioners (NAIC) has been critical of the agreement, warning that it might be used as a “backdoor to force foreign regulations on U.S. companies.”
Another state regulatory group, the National Conference of Insurance Legislators (NCOIL), which has also criticized the pact, is waiting to see what the Trump Administration policy statement on implementation says. NCOIL CEO Tom Considine, speaking at the Super Regional P/C Insurer Conference in Wisconsin on Monday, said he believes the policy statement will be an attempt to reconcile the agreement with support for state-based regulation but he questioned if this is possible. Considine, a former New Jersey banking and insurance commissioner, termed the agreement “great for Wall Street and horrible for Main Street.”
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