The U.S. And The European Union Successfully Complete Negotiations For Covered Agreement

As we previously reported in June 2016, the United States and the European Union were in discussions to enter into a Covered Agreement. The Dodd-Frank Act introduced Covered Agreements as a means for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states. On January 13, 2017, the U.S. Department of Treasury and the Office of the U.S. Trade Representative announced that the negotiations between the United States and the European Union for a Covered Agreement were successfully completed. The text of the announcement can be found here.

Also, on January 13, 2017, the United States and the European Union released a joint statement announcing the successful negotiations. The statement noted that the Covered Agreement "will ensure ongoing robust insurance consumer protection and provide enhanced regulatory certainty for insurers and reinsurers operating in both the U.S. and the EU."

The Covered Agreement covers three areas of prudential insurance oversight: 1) reinsurance; 2) group supervision; and 3) the exchange of insurance information between supervisors. The Covered Agreement contains detailed provisions, which are summarized below.

Reinsurance collateral: Covered Agreement is intended to enhance consumer protection and lead to the elimination of collateral for a ceding insurer to obtain credit for reinsurance and local presence requirements for EU and U.S. reinsurers operating in these markets. To obtain this relief a reinsurer is required: (1) to maintain a stated minimum level of capital or surplus and a stated solvency ratio; (2) consent to jurisdiction in the ceding jurisdiction and the appointment of the supervisory authority of the ceding jurisdiction as an agent to accept service of process; (3) agree to pay any judgment obtained by the ceding insurer and provide 100% security for any final judgment liability it resists; (4) pay reinsurance claims promptly; and (5) confirm that it is not participating in a solvent scheme of arrangement and provide 100% collateral for the terms of any subsequent scheme. States shall be encouraged to adapt...