The US-EU Covered Agreement: EU-US Mutual Recognition?

Transcription

1 The US-EU Cvered Agreement: EU-US Mutual Recgnitin? Mderatr: Panel: Bruce Baty, Dentns US LLP Tracey Laws, Senir Vice-President & General Cunsel, Reinsurance Assciatin f America Jhn Huff, Immediate Past President f the NAIC and Immediate Past Directr f the Missuri Department f Insurance May 5, 2017

2 WHAT IS IT? Written bilateral r multilateral agreement that relates t the recgnitin f prudential measures with respect t the business f insurance r reinsurance that achieves a level f prtectin fr insurance r reinsurance cnsumers that is substantially equivalent t the level f prtectin achieved under State insurance r reinsurance regulatin. Authrized by Ddd-Frank Act Preempts state laws that cnflict with its terms, except state insurance measures that gvern: insurers rates, premiums, underwriting r sales practices; any state insurance cverage requirements; applicatin f antitrust laws f any state t the business f insurance; r any state insurance measure gverning insurer capital r slvency, except where state measure results in less favrable treatment f nn-u.s. insurer than U.S. insurer. May 5,

3 COVERED AGREEMENT BETWEEN US AND EU In accrdance with Ddd-Frank, Cvered Agreement negtiated by U.S. Department f Treasury [thrugh Federal Insurance Office (FIO)] and United States Trade Representative (USTR) Negtiated fr US by Mike McRaith f FIO with USTR staff assistance Negtiatins began in early 2016 Cvered Agreement finalized and sent t Cngress n 1/13/2017 Cngress has 90 days t review N authrity t revise r apprve May 5,

4 WHY WAS IT NEGOTIATED? With implementatin f Slvency II, US re(insurers) are: frced t pen EU ffices r be shut ut f market; subject t nerus EU Slvency II requirements up t hlding cmpany level EU reinsurers under laws f US states are required t pst cllateral t secure their reinsurance bligatins t US cedents EU reinsurers seeking unifrmity and zer cllateral May 5,

5 WHAT IS INCLUDED? Reinsurance Grup Supervisin Exchange f Insurance Infrmatin Between Regulatrs May 5,

6 REINSURANCE Reinsurance cllateral and lcal presence requirements eliminated in bth EU and US Cllateral psting requirements fr reinsurers perating in hst cuntry eliminated where certain criteria met Cmpanies nt required t have lcal presence in hst cuntries May 5,

7 NAIC Certified Re Mdel v. Cvered Agreement Prvisins NAIC MODEL Financial Strength Ratings Ntice f Regulatry Nn-Cmpliance Audited Financials fr 3 Years Regulatr Evaluates fr Prmpt Pay Cedent Inslvency - Pst Cllateral Regulatry Authrity t Revke Qualified Jurisdictins Catastrphe Deferral Perid Cncentratin f Risk Cnsideratin COVERED AGREEMENT N Ratings Required; Slvency Rati Instead Limited Ntice Requirements Audited Financials fr 2 Years Terms Define Prmpt Pay Cedent Inslvency - May Ask Curt Prcess fr Regulatry Revcatin Favrable Treatment t EU N Reference N Reference May 5,

8 NAIC Certified Re Mdel v. Cvered Agreement Prvisins (cnt'd) NAIC MODEL Cnsent t Jurisdictin/Service f Prcess Annual Filing f Overdue Reinsurance Recverables Prmpt Payment f Claims - Factr Slvent Scheme Participatin - Factr COVERED AGREEMENT Similar Biannually Qualifier fr Eligibility fr Reduced Cllateral Prhibits Participatin in Slvent Scheme Invlving US Insurer May 5,

9 GROUP SUPERVISION Applies nly t US and EU grups that perate in bth jurisdictins EU cmpanies perating in US will be supervised nly by EU requirements US grups perating in EU will nt have t meet EU wrldwide grup capital, reprting r gvernance requirements Requires supervisin f US grups at wrldwide level May 5,

10 FORMAL PROCESS IN EU Cvered Agreement text being translated fr vte by Eurpean Cmmissin Sent t Eurpean Cuncil and Member States Eurpean Cuncil authrizes Eurpean Cmmissin t sign text EU Parliament will then vte t enter int frce Will write reprt n Agreement, either apprving r rejecting it Cannt amend Agreement Prcess can take 1 2 years May 5,

11 EFFECTS ON US STATES States have five years t cnfrm laws t Cvered Agreement During five years, US t encurage states t reduce cllateral requirements fr EU-based reinsurers by 20% per year frm current levels 42 mnths after Cvered Agreement signed, US will priritize (by fcusing n grss reinsurance premium vlume) nncmplying states FIO determines give less favrable treatment t EU insurers than t US dmiciled/licensed/admitted insurers US must cmplete any necessary preemptin prcess within 60 mnths frm date Cvered Agreement signed Within five years, states t finalize develpment f grup capital assessment fr cmpanies that d business in bth jurisdictins May 5,

12 CAN IT BE RESCINDED / TERMINATED? By Cngressinal legislative actin t blck it frm taking effect By US refusing t sign it If signed, thrugh terminatin prvisin May 5,

13 CAN IT BE RESCINDED / TERMINATED? (CONT.) Terminatin Prvisin Article 11 Terminatin and Mandatry Cnsultatin 1. Fllwing mandatry cnsultatin, either Party may terminate this Agreement at any time by giving written ntificatin t the ther Party, subject t the prcedures f this Article. Unless therwise agreed by the Parties in writing, such terminatin shall be effective in 180 days, r 90 days with respect t terminatin described in Article 10, subparagraph 2(c), after the date f such ntificatin. In particular, the Parties may terminate this Agreement where either Party has failed t fulfil its bligatins under this Agreement r has taken measures incnsistent with the bjectives f this Agreement. (Emphasis supplied.)..... May 5,

14 CAN IT BE RESCINDED / TERMINATED? (CONT.) 4. Mandatry cnsultatin thrugh the Jint Cmmittee shall be required if requested by either Party t the Chair f the Jint Cmmittee, and shall cmmence nt later 30 days, r 7 days if requested as described in Article 10, subparagraph 2(c), after such request unless the Parties agree therwise. The Party requesting mandatry cnsultatin shall prvide written ntice f the bases fr the mandatry cnsultatin. The mandatry cnsultatin may be hsted at a site determined by the Parties, and if the Parties cannt agree n a lcatin, then the Party requesting mandatry cnsultatin shall prpse three neutral sites utside f the territry f either Party, and the ther Party shall select ne f the prpsed three neutral sites. 5. Mandatry cnsultatin will be required prir t the terminatin f this Agreement, including with respect t the prvisins f Article If a Party refuses t participate in a mandatry cnsultatin as prvided in this Article, then the Party seeking t terminate may prceed t terminate the Agreement as prvided in paragraph 1 f this Article. (Emphasis supplied.) May 5,

15 ISSUES RAISED ABOUT AGREEMENT Prcess Questins Transparency Rle f State Regulatrs Dislike f FIO N vte fr Cngress Preemptin McCarran-Fergusn May 5,

16 ISSUES RAISED ABOUT AGREEMENT (cnt.) Cllateral eliminatin Retractive r prspective nly? Eliminatin rather than eliminatin/ reductin sliding scale? Grup capital assessment T what part f Grup des it apply? What happens if EU desn t like assessment? Rle fr State Regulatrs in Jint Cmmittee May 5,

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