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Despite ongoing uncertainty about Brexit, U.S. insurance trade groups say the covered agreement reached between the United States and the United Kingdom remains on track and is a key step to ensure business continuity after the U.K. has exited the European Union.
In December, the U.S. Treasury Department and the Office of the U.S. Trade Representative signed a covered agreement governing insurance and reinsurance regulation with the U.K. ahead of Brexit. That agreement was consistent with the agreement that the United States signed with the European Union in 2017, the trade association executives confirmed.
As previously reported by Business Insurance, 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. The covered agreement with the U.K. also includes elimination of collateral and local-presence requirements for reinsurers domiciled in the United States.
Responding to a request for comment, a spokeswoman for the National Association of Insurance Commissioners referred Business Insurance to a December 2018 statement.
“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 statement said.
Essentially, the purpose of negotiating the U.S.-U.K. covered agreement was “to ensure continuity and to minimize disruptions that would occur for U.S. insurers and reinsurers in light of Brexit,” said Steve Simchak, vice president and chief international counsel for the American Property Casualty Insurance Association.
Ensuring continuity is very important for U.S. insurers because they do “a lot of business” in the U.K., Mr. Simchak said.
Another reason why the U.S.-U.K. covered agreement is important is because it provides recognition by the U.K. of the U.S. regulatory system, he said.
“That means the U.K. regulator will not assert itself as the global group supervisor of U.S. groups because the U.K. recognizes the U.S. group supervision which is underway in the U.S.,” Mr. Simchak said.
The covered agreement provides that from a group supervision perspective, U.S. and U.K. insurers operating in the other’s markets will only be subject to worldwide prudential insurance group oversight by supervisors in their home jurisdictions.
The current status of the U.S.-U.K. covered agreement is that it is in a 90-day consultation period under the Dodd-Frank Wall Street Reform and Consumer Protection Act where Congress reviews the agreement, said Karalee Morell, senior vice president and general counsel at the Washington-based Reinsurance Association of America.
“We are in that period although we do not anticipate — and I understand there haven’t been — any objections raised,” Ms. Morell said.
At this point, the covered agreement is not considered in force as an international agreement, said Jonathan Bergner, assistant vice president of federal affairs in the National Association of Mutual Insurance Companies’ Washington office.
But the U.S.-EU agreement is still in force, and all the language is virtually identical, so “as a practical matter, the U.S. is already fulfilling its side of the bargain with the U.K. agreement,” Mr. Bergner said.
Once the 90-day consultation period concludes on March 10 or 11, “the agreement with the U.K. will be in place,” he said.
The U.S.-U.K. covered agreement will not be fully operational until the 90-day consultation period concludes and until there is a final resolution with respect to Brexit, “because until Brexit happens, the U.K. is still part of the EU and would still be covered under U.S.-EU covered agreement,” said the RAA’s Ms. Morell.
“Because of the importance of the U.K. as an insurance hub in Europe and because of the uncertainty surrounding Brexit, I think in general everyone has felt a formal U.S.-U.K. covered agreement is a good thing because it provides clarity and certainty,” she said.
Both the U.S.-U.K. covered agreement and negotiating a mutually-beneficial U.S.-U.K. trade agreement will be important to insurers and reinsurers in the U.S., as both are going to govern the conditions under which companies are able to operate in the U.K. post-Brexit, said the APCIA’s Mr. Simchak.
“Both agreements will be welcome, in that both agreements will support the ideal of market access and fair treatment in the U.K. for U.S. insurers and reinsurers,” he said.
In testimony given at a public hearing held by the Office of the U.S. Trade Representative in Washington on Jan. 29, regarding the proposed U.S.-U.K. trade agreement, Mr. Simchak highlighted the importance of fostering greater regulatory cooperation and modernizing cross-border insurance market access and data rules.
The hearing was part of the public notice and comment process following USTR’s notification to Congress on Oct. 16 that the Trump administration intended to open negotiations with the United Kingdom for a U.S.-U.K. trade agreement after the U.K. exits the European Union.