The EU/US Agreement on Insurance and Reinsurance entered into force on 4 April 2018, following the respective approvals by the European Parliament and the European Council during March. This agreement represents a major benefit to reinsurers operating cross-border between the US and the EU who currently must post full or partial collateral, or establish a physical presence in the foreign jurisdiction.
This is what is known as a covered agreement. Over the next five years, it will aim at gradually eliminating collateral and local presence requirements for US reinsurers operating in the EU insurance market, and will eliminate the requirement for collateral from EU reinsurers operating in the US insurance market. Four EU jurisdictions (France, Germany, Ireland and the UK) already benefit from reduced collateral for risks reinsured from US ceding insurers.
FERMA board member Laurent Nihoul commented: “This agreement will result in additional capital available for the reinsurance industry and so additional risk capacity. That could have an interesting impact on market prices for corporate insurance buyers and captive owners. As such, we believe this is a valuable new step. We support regulatory changes aimed at improving market competition and flexibility globally because they help FERMA members to achieve their objectives.”
As regards Brexit, it is reasonable to think that UK-based reinsurers will be granted the same benefits under the covered agreement as their EU counterparts until at least 31 December 2020, following the announcement of the EU-UK negotiated transition period on 19 March 2018.
The covered agreement will also confer the global supervision to the “home” jurisdiction (domicile, headquarters of an insurance or reinsurance group), under certain regulatory conditions defined in the agreement. The home jurisdiction will, therefore, assess group capital requirements. US (re)insurers will be supervised at the worldwide group level by their relevant US insurance supervisors, without having to meet Solvency II rules, and EU (re)insurers will be regulated at global level only by their national “home” authority.