In January 2017, EU and US negotiators (the European Commission for the EU and US Treasury and USTR for the USA) successfully brought to an end a year of negotiations and initialled an EU/US Agreement on insurance and reinsurance. The Agreement supports the objectives of the Capital Markets Union initiative.

Cost saving

Concretely, EU reinsurers active in the USA now have the prospect of no longer having to post collateral to back up their insurance cession contracts with US insurers. This represents a huge cost saving compared with the current situation: EU reinsurers reckon that they have approximately 40 billion US dollars tied up in reinsurance collateral in the USA, which could be put to more productive use, as their inability to freely invest represents an opportunity cost of nearly 400 million US dollars a year. Furthermore, the principle of cross-border provision of services, which is the normal way of doing business in reinsurance worldwide, is reaffirmed, and obligations to establish a local presence as a condition of doing business for reinsurers will not be allowed on either side.

Regarding insurance groups, the Agreement disapplies under certain conditions some aspects of Solvency II worldwide group supervision, particularly the worldwide group solvency requirement. The Agreement clarifies that this will not apply to US groups active in the EU which are subjected to a group solvency assessment in the USA. However, EU supervisors retain the power to request information from US groups regarding their worldwide activities if there is a potential risk to policyholders. These same provisions protect EU groups active in the USA from extraterritorial application of any US group capital requirement which might be developed in the future.

Cooperation and exchange of information between supervisors is important for the sake of policyholder protection and financial stability. The Agreement therefore contains model provisions for possible future Memoranda of Understanding for such cooperation, which EU and US supervisors are strongly encouraged to use. Exchange of personal data, involving data protection issues, is however outside the scope of the Agreement.

Adapting legislation

The implementation and application provisions allow a number of years for full application, reflecting the fact that on both sides, US states and EU member States will need to adapt their legislation on certain aspects, especially on the reinsurance side (removal of collateral or local establishment requirements). The benefits of the agreement for EU reinsurers in the USA apply on condition that benefits for US insurance groups in the EU are implemented.

The Agreement facilitates doing business in the USA for EU reinsurers. US groups in the EU will be relieved of certain Solvency II requirements concerning activities outside the EU, but a level playing field for their EU competitors in Europe will be maintained by the qualifying conditions and the information gathering powers retained by EU supervisors. EU insurance groups active in the USA can potentially benefit from the Agreement in the future. Procedures are under way in both jurisdictions to allow the Agreement to enter into legal force shortly.

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