The RAA welcomes key transatlantic reinsurance agreement negotiated by EU and US

European reinsurers could be set for a billion dollar windfall thanks to the conclusion of lengthy negotiations between the European Union and the US that will see legal and capital barriers relating to re/insurance deals lowered.

The conclusion of the so-called Covered Agreement Negotiations will mean that EU-based reinsurers operating in the US will no longer have to post collateral – something that would release billions of dollars back to certain companies.

In return, US reinsurers will not have to post collateral on business written in Europe and will be subject to less stringent regulatory oversight.

The deal, filed on January 13, was negotiated between the European Commission and the Federal Insurance Office, a US body created by the 2010 Dodd-Frank Act. It comes just days before Donald Trump becomes the next US president though opposition to the law is not anticipated.

A number of industry bodies including the Reinsurance Association of America (RAA) have welcomed the agreement.

The American Council of Life Insurers (ACLI), the American Insurance Association (AIA), and the RAA issued a joint statement in response to the conclusion of covered agreement negotiations in which they applauded the break-through.

“We welcome the successful conclusion of covered agreement negotiations between the United States and European Union. This agreement, which was reached on January 13, seeks to resolve significant insurance and reinsurance regulatory issues for companies doing business in both jurisdictions. We have long supported the covered agreement process and look forward to reviewing the details,” the statement said.

“We thank the US and European Union parties who were involved in the negotiations for advancing this important initiative. We also applaud state regulators for their invaluable contributions and their continuing commitment to US policyholders.”

The agreement actually covers three areas of prudential insurance oversight: reinsurance; group supervision; and the exchange of insurance information between supervisors.

A joint statement from the EU and the US said: “With regard to reinsurance, the agreement will enhance consumer protection and will lead to the elimination of collateral and local presence requirements for EU and US reinsurers operating in these markets.

“By virtue of the agreement, US and EU insurers operating in the other market will only be subject to worldwide prudential insurance group oversight by the supervisors in their home jurisdiction. For the United States, this preserves the primacy of the US regulators with respect to oversight of US insurance groups.

“For the EU, this preserves the primacy of EU oversight of EU insurance groups. The limitations on the exercise of worldwide group oversight outside of the home jurisdiction include limits on matters involving solvency and capital, reporting, and governance. Supervisors nevertheless preserve the ability to request and obtain information about worldwide activities which could harm policyholders' interests or financial stability in their territory.

“The agreement also encourages insurance supervisory authorities in the United States and the EU to continue to exchange supervisory information on insurers and reinsurers that operate in the US and EU markets. To support such information exchange, the agreement includes model memorandum of understanding provisions.”

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