On December 11, 2018, the U.S. Treasury and U.S. Trade Representative announced that the U.S. and U.K. had reached a final agreement on certain reinsurance collateral and other insurance regulatory measures outlined in the “Bilateral Agreement Between the United Kingdom and the United States Of America On Prudential Measures Regarding Insurance and Reinsurance”(UK Covered Agreement). The UK Covered Agreement mirrors the language in a prior agreement between the U.S. and the EU signed in September 2017, the “Bilateral Agreement Between the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance” (EU Covered Agreement). A separate covered agreement for the UK was necessary due to plans by the UK to exit the EU by March 2019. The UK Covered Agreement has been sent to the U.S. Congress for its review and is subject to a 90-day notification period before it can be signed and come into effect.
Both the UK and EU Covered Agreements address reinsurance collateral, group supervision of insurance groups and cross-border exchanges of information between regulators. Under the Covered Agreements, the parties agree that:
A state (U.S. territory) may not impose reinsurance collateral requirements upon qualifying EU or UK assuming reinsurers to the extent such reinsurers would receive less favorable treatment than assuming reinsurers domiciled in the state.
The UK (and EU member countries) may not impose local presence or similar requirements upon U.S. reinsurers that would result in U.S. reinsurers receiving less favorable treatment than assuming reinsurers domiciled, or permitted to operate, in the UK/EU.
Insurance and reinsurance groups will only be subject to worldwide group supervision in their “home” jurisdiction (the U.S., EU member country or the UK).
There should be an exchange of information between insurance supervisors in the U.S. and the EU (and the U.S. and UK) pursuant to a memorandum of understanding adopted by insurance supervisors in each country, a form of which is annexed to both Covered Agreements.
Insurance laws in each state (and in foreign countries subject to the Covered Agreements) will need to be revised so that they comply with the Covered Agreements. On the U.S. side, states are looking to the National Association of Insurance Commissioners (NAIC) to finalize amendments to the NAIC’s Credit for Reinsurance Model Law and Regulation (NAIC Model Laws) so that the Model Laws comply with the Covered Agreements. The amendments will also apply to existing and future agreements with countries outside the EU and UK (e.g. Bermuda). Once adopted by the NAIC, individual states can then introduce and adopt the amendments in their legislatures. To that end, the NAIC was expected to finalize its amendments on December 19, 2018 during a teleconference meeting of the NAIC’s Executive and Plenary Committees. However, during the call, it was announced that the Committees would not be voting on the amendments due to a last-minute request by the U.S. Treasury and USTR for additional time to evaluate concerns that the amendments do not sufficiently implement the requirements of the Covered Agreements. The Committees are scheduled to meet next at the NAIC’s Spring National Meeting on April 9, 2019 in Orlando, Florida.