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U.S. insurance trade groups are praising the covered agreement reached between the United States and the United Kingdom ahead of Brexit.
The U.S. Treasury Department and the Office of the U.S. Trade Representative on Tuesday announced their intent to sign a bilateral agreement on prudential measures regarding insurance and reinsurance, otherwise known as the U.S.-U.K. covered agreement, consistent with the agreement that the United States signed with the European Union in 2017.
The covered agreement with the U.K. addresses the same three areas as the agreement with the European Union: group supervision, reinsurance and exchange of information between supervisory authorities. For example, the covered agreement with the U.K. also includes the elimination of collateral and local presence requirements for reinsurers domiciled in the United States — requirements that threatened to wreak havoc on reinsurance agreements before the deal was signed with the European Union in 2017. Without a signed agreement, U.S. companies would have been unable to renew or write new business in the European Union without first establishing a local presence in each EU member state in which they intended to write business.
The U.K. is the world’s fourth-largest insurance market, and many U.S. insurers and reinsurers do business in the U.K., the department said in letters notifying federal legislators of the agreement on Tuesday.
The Trump administration intends to issue a U.S. policy statement regarding implementation of the U.S.-U.K. covered agreement, according to a department statement on Tuesday.
“The U.S.-U.K. covered agreement is an important step in providing regulatory certainty and market continuity as the United Kingdom prepares to leave the European Union in March 2019, as well as in making U.S. companies more competitive in domestic and foreign markets and making regulations more efficient, effective and appropriately tailored,” the department said in its statement. “The U.S.-U.K. covered agreement also benefits the U.S. economy and consumers by affirming the U.S. state-based system of insurance regulation and increasing growth opportunities for U.S. insurers.”
U.S. trade associations issued statements commending the regulators for reaching the agreement.
“We applaud U.S. and U.K. negotiators for prioritizing the stability of the insurance marketplace ahead of next year’s Brexit,” Steve Simchak, vice president and chief international counsel for the Washington-based American Insurance Association, said in a statement Wednesday. “This agreement goes a long way toward limiting any disruption to the insurance marketplace. We appreciate the emphasis put on keeping it consistent with the existing covered agreement with the European Union and the engagement of state insurance commissioners during the negotiating process.”
“The U.K. is currently covered by the existing covered agreement between the United States and European Union,” the Washington-based American Council of Life Insurers said in a statement Wednesday. “This will no longer be the case after Brexit. This agreement mirrors the terms of the U.S.-EU covered agreement and establishes its application to the U.K. It will remove regulatory uncertainty for insurers and reinsurers and establish the terms upon which companies operating in both the United States and the United Kingdom can do business in these jurisdictions.”
“We applaud these developments and look forward to the U.S. and U.K. moving forward to finalize an agreement once Congress has completed its review,” the organization added.
Some federal legislators and the National Association of Insurance Commissioners were critical of the negotiation process and of the covered agreement with the European Union as conducted and finalized by the Obama administration, namely due to a perceived lack of transparency and involvement of state insurance regulators who are primarily responsible for insurance regulation under the U.S. state-based system.
“The NAIC is still reviewing the U.S.-U.K. covered agreement text, but upon initial inspection it appears Treasury and USTR have mirrored the terms of the U.S.-EU covered agreement and largely replicated it for the U.K., consistent with our expectations,” the NAIC said in a statement. “As we have previously noted, the U.K. is an important market for the U.S. and is currently included in the existing U.S.-EU covered agreement. Given these unique circumstances, despite our concerns with the covered agreement mechanism, we do not object to its use in this instance to replicate consistent treatment for the U.K. Treasury and USTR have indicated that a policy statement to provide further guidance is forthcoming. A policy statement consistent with the one released with the U.S.-EU covered agreement is a critical step to protect state regulation and necessary to provide guidance and certainty to state legislatures and regulators around the country as we work to implement key provisions.”
State insurance regulators are concerned about a lack of transparency in talks between federal officials and their European counterparts, as well as the implementation of new regulatory requirements in some European countries that are complicating January renewals for U.S. insurers and reinsurers and even costing them some business.