The competitiveness council adopted the decision to sign the covered agreement at a meeting on 29 May.
It provides for provisional application of some of the agreement’s provisions, pending the completion of the procedures necessary for its conclusion. The European Council has also requested the consent of the European Parliament for conclusion of the agreement.
According to the European Council, the US-EU covered agreement, which includes provisions on reinsurance, group supervision and the exchange of information, will “provide legal certainty for EU and US insurers and reinsurers in the application of regulatory frameworks”.
It will also “enable improved protection for policyholders and other consumers through cooperation between supervisors and the exchange of information”.
The US-EU covered agreement, consensus on which was achieved in January between the EU and the US Treasury and the US Trade Representative (USTR), will eliminate collateral requirements, resulting in additional capital, increase reinsurance capacity, and streamline the dispute process, according to the Risk Management Society.
Crucially, EU supervisors will acknowledge and affirm the US insurance regulatory framework, promising to allow US insurers and reinsurers to compete in their markets without rules being imposed on them under Solvency II.
The US-EU covered agreement has not been without criticism, most notably from the National Association of Insurance Commissioners (NAIC), which was an observer to negotiations.
The NAIC has raised concerns about not being able to vote on the decision to go ahead with the US-EU covered agreement, and around transparency, and is concerned about the provision in the agreement for foreign jurisdictions to have regulatory authority over a US company.
Speaking at the Captive Insurance Companies Association International Conference in March, Skip Myers, partner of the insurance group at Morris, Manning & Martin, confirmed that 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, founder of McIntyre & Lemon, added that, while the agreement might not have any direct effect on captive insurance, it could eliminate some barriers and stabilise pricing, which are both positive for captive insurers.