A five year agreement between the US and the EU standardizing certain requirements for foreign insurers was finalized and presented to Congress for 90 days of review and comment on January 13, 2017 after lengthy negotiations between the U.S. Department of the Treasury’s Federal Insurance Office and the U.S. Trade Representative and similar EU officials. If approved by both the US and the EU, the agreement will soften the impact of the EU underwriting legislation known as Solvency II on US insurers operating in the EU by providing that both US and EU insurers operating outside their home market are subject only to their home authorities and by acknowledging US regulation as provisionally “equivalent” to Solvency II.  The capitalization, reserving and reporting requirements of the US will not apply to EU insurers and vice versa, although certain information can be requested by local authorities.  Included in this reciprocal arrangement is the elimination of collateral requirements previously imposed on reinsurance.  The agreement is expected to make it easier for both sets of insurers to do profitable business overseas.

The United Kingdom is currently still part of the EU, and will be until the UK gives the EU formal notice of withdrawal and completes negotiations that are expected to take two years or longer.  By that time the UK insurance market expects to be Solvency II equivalent.  Meanwhile, the UK is part of this agreement with the US.  Eventually a separate US/UK agreement will have to be negotiated as BREXIT moves forward.

We will see if the Trump administration and the May administration, each of which endorse favoring domestic business over foreign competitors, will attempt to block approval of this agreement or otherwise to modify the insurance industry’s efforts at maintaining the status quo and an even playing field.  Since foreign business is the largest growth sector for many insurers, much of the insurance market favors equivalency in international transactions.  But here in the US, state insurance regulators may feel left out of the current agreement, which was negotiated by federal officials promising uniformity across the states.  And the Trump administration is committed to reducing federal regulation and returning more control to the individual states.

We note that current reports from London indicate that the financial services sector, including insurance services, do not anticipate large relocation of employees.  Small overseas offices with many virtual functions may suffice to meet local requirements once BREXIT goes into effect.  Moreover, UK insurers are already increasing their US presence as their US books of business grow, not due to regulatory requirements but to cost effective business administration.  So we may see more domestic offices and representatives for UK insurers, but not necessarily due to BREXIT.

At present, we continue to forecast business as usual despite BREXIT and other changes to the international landscape.  So once again, we say: “Stay calm and carry on.”