State Insurance Regulation Supported in US-European Union Agreement

The US Treasury Department recently announced that European Union (EU) and US representatives have successfully negotiated a bilateral agreement on insurance and reinsurance regulation intended to “provide enhanced regulatory certainty” for the industry.

Under the agreement, US and EU insurers operating in the other market will only be subject to worldwide insurance group oversight by the supervisors in their home jurisdiction. For the United States, this preserves the primacy of the US regulators with respect to oversight of US insurance groups. For the EU, this preserves the primacy of EU oversight of EU insurance groups.

The following are a few key provisions of the agreement.

• Limitations on the exercise of oversight outside of the US jurisdiction on capital, reporting, and governance
• Elimination of collateral and local presence requirements for EU and US reinsurers operating in these markets
• Encouraged continued exchange of supervisory information on insurers and reinsurers that operate in the US and EU markets

The final legal text of the Agreement was provided to Congress on January 13, 2017, in accordance with the Dodd-Frank Act. 

The US insurance industry reacted favorably to the conclusion of the negotiation process. A joint statement issued on behalf of the American Council of Life Insurers (ACLI), the American Insurance Association (AIA), and the Reinsurance Association of America (RAA) reads, in part, “We welcome the successful conclusion of covered agreement negotiations between the United States and European Union. This agreement, which was reached on January 13, seeks to resolve significant insurance and reinsurance regulatory issues for companies doing business in both jurisdictions. We have long supported the covered agreement process and look forward to reviewing the details.”

On the other hand, state regulators were disappointed with their lack of involvement in the negotiation process and are reacting with a degree of suspicion. In a January 13 National Association of Insurance Commissioners (NAIC) press release, Ted Nickel, NAIC president and Wisconsin insurance commissioner, was quoted saying “as most state regulators were not allowed to participate in the process, the NAIC is coordinating a thorough review of the agreement to ensure consumer protections are not compromised through the preemption of state law, and we encourage Congress to do the same. Of great concern is the potential to use this agreement as a backdoor to force foreign regulations on US companies."