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EU/U.S. Covered Agreement: What’s Next?

On January 13, 2017, representatives of the European Union and the United States of America issued a joint statement announcing that they had successfully concluded negotiation of an agreement (the “Agreement” or “Covered Agreement”) that both parties contend “will ensure ongoing robust insurance consumer protection and provide enhanced regulatory certainty for insurers and reinsurers operating in both the U.S. and the EU.”  According to the joint statement, the Agreement constitutes a “covered agreement” within the meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) in the U.S. and an “agreement” under Article 218 of the Treaty on the Functioning of the European Union in the EU.

The Agreement addresses three areas of prudential insurance regulation important to internationally active (re)insurers: (1) reinsurance; (2) group supervision; and (3) the exchange of information between insurance supervisors. As discussed more fully below, key aspects of the Agreement are meant to provide EU-based (re)insurers with relief from U.S. collateral requirements, to provide U.S.-based (re)insurers with relief from EU local presence requirements, and to free U.S. insurance groups operating in the EU from EU worldwide group capital, solvency, reporting, and governance requirements under the EU “Solvency II” Directive and applicable implementing legislation (“Solvency II”).  The group supervision and reinsurance provisions are conditioned upon one another. Therefore, without collateral relief for EU-based entities, there is no local presence or worldwide group supervision relief for U.S.-based entities, and vice-versa.

This article provides some background on the impetus behind the Agreement, summarizes its substantive terms, and discusses issues related to its implementation.

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