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U.S. hopes to reach agreement with E.U. on equivalent standards for insurers, reinsurers

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U.S. negotiators stand a reasonable chance of winning agreement with the European Union on so-called “covered agreements” that could lessen the burden on U.S. insurers and reinsurers doing business there, according to some observers.

The U.S. Treasury Department and the Office of the U.S. Trade Representative informed Congress late last month that the United States intends to initiate negotiations with the E.U. regarding a covered agreement, defined in letters to key lawmakers as a “written bilateral or unilateral agreement regarding prudential measures with respect to the business of insurance or reinsurance.”

The letters said that a covered agreement with the E.U. “would level the regulatory playing field for U.S.-based insurers and reinsurers operating there and further confirm that the existing U.S. insurance regulatory system serves the goals of insurance sector oversight, policyholder protection and national and global financial security.”

Of particular importance is the relation of a covered agreement to Solvency II, the E.U. insurance regulatory framework that took effect Jan. 1.

“Through negotiating a covered agreement, Treasury and the USTR will seek to ensure that U.S. insurers and reinsurers will be permitted to operate in the E.U. on the same regulatory terms as insurers and reinsurers domiciled in the E.U. in jurisdictions deemed equivalent under Solvency II,” Anne Wall, assistant Treasury secretary for legislative affairs, and Mike Harney, assistant U.S. trade representative for congressional affairs, said in the letter.

There is concern that U.S. insurers and reinsurers would be forced to meet heightened capital and collateral requirements if the state-based U.S. regulatory system is not deemed equivalent to that of the E.U.

The letter did not give any timetable for the negotiations. Nevertheless, some observers think the effort will succeed.

“I think there's a pretty decent chance they'll go through with this,” said Matthew Gaul, a partner in the New York office of international law firm Dentons U.S. L.L.P. and a former New York insurance regulator.

“Equivalency is the biggest piece,” he said. “There's an issue for U.S. insurers with operations in the E.U. in how they'll be treated under Solvency II when there's no way to knit together the two regulatory structures they'll be operating under.”

Tracey Laws, senior vice president and general counsel of the Washington-based Reinsurance Association of America, noted in an email that even before Solvency II took effect, U.S.-based companies had begun to experience burdensome requirements because the U.S. insurance regulatory system has not been deemed “equivalent” by the European Union.

“The RAA is hopeful that a covered agreement can achieve equivalence for the U.S. on reinsurance and group supervision, thereby putting U.S.-based companies on a more competitive footing with their European counterparts,” she wrote.

The American Insurance Association also hailed the possibility of a covered agreement.

“The U.S.-E.U. relationship is very important to U.S. insurers, and we view the coverage agreement as a vehicle to help resolve some of the issues between those two regulatory jurisdictions,” said AIA President and CEO Leigh Ann Pusey.

“I think 2016 is the year for the covered agreement if it's going to happen,” she said.

“We want to preserve the open trans-Atlantic insurance market through an agreement that is essentially mutual recognition,” Dave Snyder, a vice president in the Property Casualty Insurers Association of America's Washington office, said in an email. “For the negotiations to be successful here, U.S. negotiators should avoid positions that trigger unnecessary controversy in areas such as group supervision.

“Since the U.S. has taken a major step, it is critical that Europe reciprocate and provide U.S. companies doing business in Europe temporary equivalence or at least a sufficient standstill or grace period,” he added. “That is also fair, as Europe has deemed the U.S. regulatory system equivalent for the benefit of their companies doing business here.”

One insurance representative saw potentially positive and negative effects in the covered agreement.

“The instrument that is a covered agreement is new, is broad and sweeping in its potential authority, and can be fraught with dangerous pre-emptions” of state insurance regulations, said Jimi Grande, senior vice president in the Washington office of the National Association of Mutual Insurance Companies. “But if used properly, it can also solve some regulatory issues.”

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