The National Association of Insurance Commissioners expects to begin implementing the covered agreement between the European Union and the U.S. at the state level by the end of 2018, according to its president, Julie McPeak.
"It is very critical to have those revisions in place by the end of the year," McPeak said, referring to a set of revisions to the NAIC's 2011 model law that individual states must pass to put the covered agreement into place. States could face face pre-emption by the federal government if the law is not adopted, and the revisions will be an accreditation requirement as of Jan. 1, 2019.
McPeak, also the Tennessee insurance and commerce regulator, spoke March 14 on behalf of the NAIC, the standard-setter for state insurance regulation, at an insurance public policy summit sponsored by Indiana State University and other partners in Washington, D.C.
The covered agreement, the first of its kind under the Dodd-Frank Act, is a bilateral agreement on reinsurance collateral with U.S. insurance group supervision components that was negotiated among the EU, the Treasury Department's Federal Insurance Office and the Office of the United States Trade Representative. The agreement was signed in September 2017.
The new pact gives authority to Treasury to pre-empt state law if a state is not offering EU reinsurers collateral relief when doing business in that state after a period of five years. At least 42 states have already passed the revised NAIC 2011 model law in their legislatures, laying the groundwork for the covered agreement to go into effect nationwide.
More changes could be in the pipeline, McPeak said. Another set of model law revisions in 2018 could allow other qualified jurisdictions outside the EU to receive the reinsurance collateral benefits of covered agreements.
McPeak said there has been consensus on that idea and referred to a widely attended NAIC-sponsored covered agreement hearing in New York in February. The NAIC's list of countries it deems to be qualified jurisdictions includes Bermuda, Japan, Switzerland and the U.K. post-Brexit. Qualified jurisdictions are marked by their reinsurance supervisory effectiveness, the degree to which they share information and their cooperation with state regulators.
However, McPeak said, "we would like something in return for" those reinsurance benefits, she said, notably those other countries' recognition of the state regulatory system and its approach to supervision and capital.
