The US and EU concluded insurance negotiations and agreed to remove regulations in hopes of easing transatlantic insurance and reinsurance operations.
In early January, the United States and the European Union reached an insurance agreement which is expected to open up the insurance market and reduce international regulation. Known as the Covered Agreement, this new policy spans three areas of insurance oversight: reinsurance, group supervision, and the exchange of insurance information between regulators.
How the Agreement Works
Regarding reinsurance, the agreement levels the playing field between the US and EU. Going forward, collateral and local presence requirements imposed on one party must apply to both the US and the EU. European reinsurers have long wanted US regulators to lessen these requirements, complaining of a disadvantage compared to their American competitors.
The group supervision aspect of the agreement states that US and EU insurers operating outside their home market will only be subject to oversight by regulators in their home jurisdiction. This is beneficial for insurers and reinsurers that operate in both regions, as they will not be subject to duplication of group supervision and other regulations.
The last part of the agreement is not a requirement, but encourages regulatory bodies in the US and EU to exchange supervisory information about insurers and reinsurers who do business in each market.
What Motivated the Agreement?
According to US Trade Representative Michael Froman, “this agreement will provide opportunities for US insurers and reinsurers doing business in the EU while continuing to ensure a high standard of protection for US and EU consumers.” In other words, it removes the current regulations that make it difficult for US and EU entities to operate in a region outside of their home jurisdiction.
The US insurance landscape has endured some major shake-ups recently: the Department of Labor’s new fiduciary rule set to go into effect in April and the numerous insurance mergers and acquisitions in the past year are two examples of significant industry changes that have informed the latest US-EU jurisdiction agreement. These developments make it especially important for US insurers to be permitted to operate globally without strict regulations.
This agreement did draw concerns, however, from state insurance regulators who fear that it could undermine the current US system, in which said regulators handle the collateral requirements for non-US insurance and reinsurance companies.
Although the US and the EU agreed on the conditions of the new policy, the entities must wait out the 90-day congressional examination period before U.S. authorities can officially sign off on the agreement.
What the Agreement Means for the Insurance Industry
The agreement between the US and the EU appears to be mutually beneficial, and insurance professionals appear to agree: it has the support of the American Insurance Association, the American Council of Life Insurers, the Reinsurance Association of America, and the International Underwriting Association (IUA). In particular, the IUA believes that the agreement will enhance international reinsurance regulation, make cross-border trading more efficient, and promote global access to reinsurance services.
Global insurance regulatory leader for Deloitte Services LP Howard Mills noted that “this is a very welcome development for US insurers,” as it “will enable them to write business in the EU insurance market and will alleviate their long-standing concern that lack of equivalence would restrict their ability to be globally competitive in an ever-increasingly competitive insurance marketplace.”
Although the Trump administration has called for a moratorium on all federal regulatory activity, the President’s stated commitment to slashing regulations nationwide will most likely lead to the Treasury Department upholding the agreement. As is the case for many recent regulatory developments, however, the insurance industry may simply need to wait and see.