We have posted several times on the negotiation and finalization of the Covered Agreement ("the Agreement") negotiated by the Obama Administration and approved by the Trump Administration with the European Union. The agreed text of the Agreement was released in January of this year, and the House Financial Services Committee held a hearing on the Agreement the following month. The Trump Administration's decision to sign the Agreement was announced in July, and included a statement that the U.S. would issue a "U.S. policy statement on implementation." That statement intrigued many, prompting speculation as to the positions that would be taken in that policy statement. We posted an analysis of the complicated timeline for the implementation of the Agreement later that month.
In conjunction with on September 22, the U.S. released . The policy statement is not remarkable, and is based upon a theme that the Agreement affirms, preserves, and builds upon the U.S. state-based structure for the regulation of the business of insurance. The policy statement summarizes various provisions of the Agreement, stating in part that the Agreement:
- with respect to the collateral requirement, "does not prevent a state insurance regulator from imposing non-collateral requirements that do not have substantially the same regulatory impact as collateral requirements as conditions for ceding companies to enter into reinsurance agreements with EU reinsurers or to allow credit for such reinsurance, if the state insurance regulator applies the same requirements in the case of reinsurance agreements with U.S. reinsurers domiciled in that state;"
- does not prevent parties to reinsurance agreements to contractually require collateral for reinsurance;
- excludes the US parent of US-domiciled reinsurers from the need to comply with the requirements of Solvency II just because it has an affiliate doing business in the EU; and
- preserves the authority of the states (in conjunction with the NAIC) to set capital requirements for US insurance groups.
The principal text of the Conclusion section of the policy statement provides:
The Agreement supports the principles specified in the Presidential Executive Order on Core Principles for Regulating the United States Financial System (Feb. 3, 2017) by enabling U.S. companies to be competitive with foreign firms in domestic and foreign markets; advancing U.S. interests in international financial regulatory negotiations and meetings; and making regulation efficient, effective, and appropriately tailored. The United States looks forward to promoting the interests of U.S. stakeholders, U.S. insurance regulators, and the U.S. economy as the Agreement is implemented. The United States also shares with the EU the goal of protecting insurance and reinsurance consumers while respecting one another's system for supervision and regulation.
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