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Two dozen U.S. congressional legislators have asked the treasury secretary to clarify the covered agreement reached between the United States and the European Union in response to the bloc’s Solvency II directive.
The covered agreement deal negotiated by the U.S. Department of the Treasury under the Obama administration and the Office of the U.S. Trade Representative, announced on Jan. 13, aims to address the fact that the European Commission has not deemed the United States an equivalent jurisdiction according to the EU’s Solvency II directive outlining a risk-based capital regime for insurers and reinsurers in Europe.
Housing and Insurance subcommittee Chairman Sean Duffy, R-Wis., and 23 other legislators sent a letter on Friday to Treasury Secretary Steven Mnuchin and Office of the U.S. Trade Representative Acting Ambassador Stephen Vaughn, asking that the agreement not be signed without formal clarifications they believe are needed to protect U.S. policyholders and the U.S. insurance regulatory system.
“If clarifications are not made, we are concerned that the agreement could commit the U.S. to making significant, and potentially harmful, changes to the way the U.S. and the states regulate the domestic insurance industry,” the legislators said in their letter.
For example, the legislators asked for clarification on the expectations for collateral reduction prior to the five-year implementation deadline and that the agreement’s collateral changes do not retroactively eliminate prior reinsurance collateral obligations under reinsurance contracts entered into before the agreement’s effective date.
The legislators also asked for an assurance that the EU recognizes the soundness of the U.S. regulatory system and will not exert its discretionary group supervision authority over non-EU insurers absent actual concerns developed through the supervisory college.
“Given the recent transition in administrations and the EU’s long-held desire to lower collateral requirements for reinsurance transactions, we believe the EU will be willing to have a constructive dialogue and play a positive role in trying to reach consensus on these important issues,” the legislators said.
The National Association of Insurance Commissioners opposes the covered agreement and has also asked for further clarification, but several insurance industry groups continue to defend the agreement.
“The covered agreement solves an actual threat that U.S. insurers and reinsurers are facing from E.U. Solvency II regulations,” Wes McClelland, vice president for federal affairs, American Insurance Association in Washington, said in a statement. “Topics included in the covered agreement are not new and are the focus of state regulator efforts long underway. Given past work and statements on these issues, we believe that the plain meaning of the agreement is clear. Attempts to reopen negotiations and slow approval are unwarranted at this time and risk losing a solution that works.”
The reinsurance bilateral agreement between the European Union and the United States has been successfully concluded, Xpirimm.com reported.
"The agreement aims for the application of the same requirements to both EU and U.S. reinsurers placing business in each other's jurisdictions, which will help support bilateral trade in reinsurance, for the benefit of both consumers and economies," said Cristina Mihai, head of prudential regulation and international affairs at Insurance Europe.
Under the agreement, U.S. 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.