International agreement assures level playing field for US, EU insurers
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A new international agreement on insurance and reinsurance prudential measures is a win for the industry and for the U.S. system of insurance regulation. It gives international recognition to the state-based insurance regulatory system and provides U.S. insurers and reinsurers the badly-needed certainty that they will no longer face discriminatory regulatory measures in the European Union.

The U.S. Treasury’s Federal Insurance Office (FIO) and the U.S. Trade Representative (USTR) announced in November 2015 that they would enter into negotiations for a “Covered Agreement” on insurance prudential matters with the European Union. 


On Jan. 13, they announced that those negotiations are complete, and submitted the agreement to Congress. U.S. state insurance commissioners played a significant role advising the U.S. negotiators every step of the way, and through their efforts the agreement affirms our U.S. system of regulating insurance. 


The deal could not have come too soon. Since the European Union’s Solvency II Directive was activated on Jan. 1, 2016, U.S. (re)insurance groups that do business in the European Union have faced increasingly discriminatory regulations from EU Member State governments.

Unnecessary regulatory divergence between the United States and European Union quickly turned into market access barriers as U.S.-based reinsurers were told they could not offer reinsurance to the EU and insurance groups were threatened with onerous, duplicative regulatory requirements.

By affirming the U.S. system of insurance supervision, the covered agreement will reintroduce a level playing field for U.S. insurers competing in the EU, requiring that regulatory treatment of U.S. groups in the EU will be no less favorable than the treatment received by European insurers.

Specifically, the Covered Agreement limits “global” group supervision to the home country supervisor, meaning U.S. insurers operating in the EU will be subject to worldwide prudential insurance group oversight only by their home U.S. supervisor.  In addition, it guarantees that European regulators will no longer tell U.S. reinsurers that they have to open a local presence in each EU country to do business there.

The Covered Agreement is an alternative to submitting to the “Equivalence” process — a European legal process that provides benefits to insurance and reinsurance groups from countries that are willing to model their regulatory systems on the EU’s system. 

Rather than requiring significant changes in the U.S. state-based system, the Covered Agreement allows regulators on both sides to rely on the existing framework in each other’s jurisdictions while, at the same, time providing similar treatment for U.S. groups to the treatment of insurance groups from “equivalent” jurisdictions.

There’s a reason that so many of the provisions in the Covered Agreement remind a reader of existing practices in the U.S.  Many of the provisions in the reinsurance and group supervision sections are drawn directly from state law and the state insurance commissioners’ own models. 

Although the agreement does allow for a narrow preemption of state law on reinsurance, fears that the Covered Agreement would be a backdoor to adopt wide swaths of European regulations did not come to fruition.

In the agreement, the EU agreed to largely accept the current efforts of U.S. state insurance regulators in developing a group capital assessment and reducing statutory reinsurance collateral requirements. Moreover, per the scope of the agreement, it covers only those U.S. (re)insurance groups that have EU operations and, by extension, only those states that supervise those U.S. groups.

Now that the agreement has been submitted to Congress, the onus is upon the European Union to go through its own procedures to bring the deal into force and upon European regulators to implement it.

On the U.S. side, having completed the first successful Covered Agreement, we now have the opportunity to reflect on the negotiating and consultation process. Improvements to the negotiating process can be made, and anything that can be done to increase transparency and stakeholder involvement while maintaining the integrity of negotiations should be on the table.

The conclusion of the Covered Agreement is a victory for U.S. insurers and the U.S. regulatory system. It is also a crucial step forward in addressing the modern issues that face global insurance markets. With continued support, its benefit for insurers and policyholders can continue to grow.


Leigh Ann Pusey is president & CEO of the American Insurance Association. 

The views expressed by contributors are their own and not the views of The Hill.