On 18 December 2018 the UK and the U.S. signed an agreement on the prudential supervision of insurance and reinsurance companies. Shortly thereafter, on 25 January 2019, HM Treasury announced that it had signed an agreement with Switzerland on direct insurance. These agreements form part of the UK Government’s Brexit preparations: after the UK leaves the EU, it will no longer be bound by agreements made by the EU with the U.S. and with Switzerland.
Background: the EU-U.S. Agreement
The EU and the U.S. signed an agreement on the prudential supervision of insurance and reinsurance companies on 22 September 2017. We have previously covered the EU-U.S. agreement on our blog; a brief summary is below.
Recognising that the EU’s Solvency II prudential supervision regime is equivalent to the U.S.’s prudential supervision regime, the EU-U.S. agreement is aimed at relaxing prudential compliance in three areas for insurance and reinsurance companies.
First, the agreement restricts each party from requiring a reinsurance company from the other party’s jurisdiction to post collateral or have a local presence, except where a reinsurance company from the party’s own jurisdiction would also be subject to those requirements, thereby ensuring equal treatment. This is subject to the reinsurance company from the party’s jurisdiction complying with certain prudential measures in its home state.
Second, the agreement reserves prudential group supervision of an insurance or reinsurance company from the other party’s jurisdiction to the home state supervisory authority of the worldwide parent undertaking of the group. However, the host state supervisory authority may request from the group certain documentation it submits to the home state supervisory authority in compliance with its prudential supervision obligations. Each party is also permitted to supervise the insurance or reinsurance company’s group at the level of the parent undertaking in the party’s own jurisdiction.
Third, the annex to the agreement lays out a model memorandum of understanding to encourage the exchange of information between the parties’ supervisory authorities, including procedures for requesting information and sharing any information received onward.
In addition to these, the agreement establishes a Joint Committee whose purpose is to facilitate the proper implementation of the agreement.
The UK-U.S. Agreement
The UK-U.S. agreement replicates the text of the three areas covered by the EU-U.S. agreement. According to the explanatory memorandum published alongside the UK-U.S. agreement, this is done deliberately in order to ensure that UK leaving the EU does not affect the prudential supervisory relationship between the UK and the U.S. or the benefit which UK firms currently enjoy as a result of the equalisation in treatment resulting from the execution of the EU-U.S. agreement.
The only two differences between the EU-U.S. agreement and the UK-U.S. agreement are: the UK-U.S. agreement contains a new provision which requires the parties to consult the Joint Committee within 90 days of the agreement entering into force; and the UK-U.S. agreement clarifies that any references to EU legislation, such as the Solvency II Directive, are references to retained EU law.
The UK-Switzerland Agreement
While the terms of the UK-Switzerland agreement have not yet been published, HM Treasury’s announcement indicated that the agreement replicates the terms of the EU-Switzerland agreement. This is the same approach as that taken in relation to the UK-U.S. agreement and the EU-U.S. agreement above.