trending Market Intelligence /marketintelligence/en/news-insights/trending/8CM8NLkvGV87aICGDNqseg2 content esgSubNav
In This List

Reinsurers push for more countries to reap benefits of US-EU covered agreement

Blog

The Big Picture 2022 Insurance Industry Outlook

Podcast

Next in Tech | Episode 37: Insurance impacts on technology and vice versa

Case Study

A Prestigious Global Business School Gains a Competitive Edge

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage


Reinsurers push for more countries to reap benefits of US-EU covered agreement

Reinsurers based outside the EU and the U.S. could be poised to benefit from an accord between the European Union and the U.S. known as the covered agreement, regulators and industry professionals said Dec. 3 at an insurance regulatory meeting in Honolulu.

Along with other covered agreement implementation matters, the proposal will be considered, or at least discussed, by insurance regulators at a hearing in February 2018. Reinsurers say their proposal would help level the playing field for companies in their industry.

The EU and the U.S. signed the covered agreement in September, exempting EU reinsurers from having to pay statutory collateral costs for reinsurance placed in the U.S. while giving U.S. companies relief from the EU's Solvency II strictures. The agreement was reached in the last days of the Obama administration but signed in the Trump administration by the Treasury Department and the United States Trade Representative.

For months, the reinsurance industry has been quietly discussing the possibility of asking U.S. regulators to act in a way that is "jurisdictionally agnostic," a new concept that they say means treating certain countries the same way the EU is treated by the covered agreement's collateral relief provisions. Reinsurance collateral can be as high as 100% for some jurisdictions but is lowered for others considered to have stronger regulatory regimes.

These added countries would be only those considered "qualified jurisdictions," a National Association of Insurance Commissioners, or NAIC, term used to rate other jurisdictions doing business in the U.S.

A non-U.S. state "qualified jurisdiction" is an NAIC designation for countries whose oversight and financial solvency regulation of reinsurers is considered very strong. The determination of the designation is based on the effectiveness of the entire reinsurance supervisory system within the jurisdiction, according to the NAIC, an assembly of state insurance supervisors that is not itself a regulator.

Reinsurance industry representatives say the jurisdictions seeking EU-equivalent treatment are Bermuda, Japan and Switzerland. The U.K. would also be among non-EU qualified jurisdictions post-Brexit, they note.

Maria Vullo, superintendent of the New York Department of Financial Services and chair of the NAIC’s Reinsurance Task Force, proposed the February public hearing in New York or perhaps Washington to discuss "the way forward" for dealing with the implications of the covered agreement, and to get input into a number of related issues. These could include solvency concerns arising from lower or no collateral payments, state laws that might have to be changed to comport with the federal covered agreement language and the reinsurers' proposal, according to comments made during the Task Force meeting, held during the NAIC's fall national conference in Honolulu.

Vullo said the organization had not decided on anything yet regarding what action states or the NAIC might take.

The Reinsurance Association of America supports efforts to implement changes necessary for the covered agreement as well as a jurisdictionally agnostic process to have a level playing field among reinsurers, said Dennis Burke, a vice president with the trade group.

Matt Wulf, who heads state regulatory affairs in the Americas for Swiss Re AG, told the NAIC during the task force meeting that his company supports extending the covered agreement to qualified jurisdictions and suggested the regulators and industry meet frequently on the issue.

The RAA's Burke assured state regulators, who had invited interested parties to make comments during the meeting, that the benefits of the covered agreement would be extended, under the reinsurers' vision, to include only jurisdictions with robust regulatory regimes, not "the flotsam and jetsam of the regulatory world."