San Diego
20 March 2017
Reporter: Becky Butcher

Captive industry meets covered agreement with mixed response


Industry response to the covered agreement between the EU and the US has been interesting and varied, according to panellists at the Captive Insurance Companies Association (CICA) International conference

The panel discussed the agreement between the EU and the US Treasury and the Office of the US Trade Representative (USTR), completed on 13 January. The agreement provides a mutual agreement of prudential supervision in the EU and the US that will eliminate the increasing barriers to US groups operating in Europe.

Panellists explained that the agreement was needed because the European Commission has not deemed the US as an equivalent jurisdiction under the Solvency II Directive, which means US companies would need to cover a lot of additional requirements in order to do business in the EU.

The agreement eliminates the requirement for a local place of business in the host jurisdiction and the requirement for collateral. It applies to companies that have more than $250 million in capital, and those with the equivalent in euro for EU countries.

Skip Myers, partner of the insurance group at Morris, Manning and Martin, suggested that reaction to the agreement has been interesting. The National Association of Insurance Commissioners (NAIC) has been particularly troubled by it, he said. Although it wasn’t a part of negotiations, it was an observer.

The NAIC has raised concerns about not being able to vote on the decision and around transparency, and is concerned about the provision in the agreement for foreign jurisdictions to have regulatory authority over a US company.

Myers said the NAIC is looking at the agreement and is preparing amendments to submit to the US Treasury.

Other bodies, including the Reinsurance Association of America, believe the agreement brings some predictability to their members’ participation in the European markets, and vice versa, according to Myers.

Jim McIntyre, partner of McIntyre & Lemon, added that, while the agreement might not have any direct effect on captives, it could eliminate some barriers and stabilise pricing, which is good for captives.

Finally, the panel discussed possible changes around the Affordable Care Act (ACA). Panellists suggested that, although President Donald Trump and the Republicans plan to repeal or replace the ACA, it’s unclear what the replacement will ultimately look like. Myers said: “The change, on balance, could be good for captives”.

He added: “Captives now, even under the ACA, have grown in the healthcare space in terms of medical stop-loss for employer plans and that will continue to grow. The fact the states will be more involved [will be positive]. I think we are heading for a system where there is more state control, which I think is a good thing for captives.”

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