Title V of the Dodd-Frank Act authorizes the Secretary of the Treasury and the Office of the United States Trade Representative (USTR) to jointly negotiate a “covered agreement” on behalf of the United States with one or more foreign governments, authorities, or regulatory entities.
A covered agreement is an international agreement that relates to the recognition of prudential measures with respect to the business of insurance or reinsurance that achieves a level of protection for insurance or reinsurance consumers that is substantially equivalent to the level of protection achieved under state insurance or reinsurance regulation.
In November 2015, Treasury and USTR began the process of negotiating a covered agreement with the European Union (EU), by advising Congress that a covered agreement with the EU would help level the regulatory playing field for U.S.-based insurers and reinsurers operating in the EU, and would further confirm that the existing U.S. insurance regulatory system serves the goals of insurance sector oversight, policyholder protection, and national and global financial stability. Those negotiations resulted in an agreed final legal text, which Treasury and USTR submitted to Congress in January 2017.
The covered agreement with the EU – formally titled Bilateral Agreement Between the United States of America and the European Union On Prudential Measures Regarding Insurance and Reinsurance – addresses three areas of insurance and reinsurance prudential measures: (1) group supervision; (2) reinsurance supervision, including collateral and local presence requirements; and (3) exchange of information between supervisory authorities. The covered agreement promotes U.S. interests by allowing U.S. insurers with EU operations to avoid burdensome worldwide group capital, governance, and reporting requirements under the EU’s “Solvency II” prudential regulatory system for insurers, as well as EU local presence and collateral requirements for U.S. reinsurers. The covered agreement also commits the United States to eliminating state-based reinsurance collateral requirements as applied to cessions to EU reinsurers that meet the consumer protection standards specified in the agreement. Collateral elimination for EU reinsurers will apply prospectively only, on a uniform national basis, and according to timeline established in the agreement.
In July 2017, Treasury and USTR announced their intention to sign the covered agreement and, at the same time, to issue a United States “policy statement” responsive to the most significant concerns raised by industry and regulatory stakeholders. The EU made a similar announcement, confirming the earlier decision of the European Council to move forward with the agreement.
On September 22, 2017 in a ceremony held at the Treasury Department in Washington, D.C., the U.S.-EU covered agreement was formally signed by the Secretary and the U.S. Trade Representative (Ambassador Lighthizer) on behalf of the United States, and the Estonian and EU Ambassadors to the United States on behalf of the EU.