US insurance industry vigorously defends US-EU covered agreement

The US-EU covered agreement on insurance and reinsurance has been defended by the US insurance industry at a hearing before the Senate Committee on Banking, Housing and Urban Affairs. The agreement has faced criticism from the National Association of Insurance Commissioners (NAIC) and demands for greater clarity. However, Michael Sapnar, president and CEO of Transatlantic Re and immediate past chairman of the Reinsurance Association of America, said the agreement is a “win” for US companies doing business in the EU and for the US system of insurance regulation. “It is also consistent with the current administration’s regulatory policy to ‘enable American companies to be competitive with foreign firms in domestic and foreign markets, advance American interests in international financial negotiations and meetings, [and] make regulation efficient, effective and appropriately tailored’,’” he said. Mr Sapnar was also testifying on behalf of the American Insurance Association, the American Council of Life Insurers and the Council of Agents and Brokers. He said the bilateral agreement had their “collective full support.” He said it resolves several important prudential issues that are adversely impacting US companies doing business in both the US and the EU. He pointed to three immediate benefits to the US (re)insurance sector. First, US-based reinsurers can resume doing business in markets where they were excluded because of the implementation of the EU’s Solvency II regime, and ensures that qualifying US-based reinsurers will not have to post collateral in the EU. Second, global group supervision can only be conducted by the home country supervisor. In other words, US insurers with EU operating companies will only be subject to worldwide prudential insurance group oversight by their lead US state regulator. Mr Sapnar said it is estimated that this limitation on the application of Solvency II will save US-based property/casualty and life companies potentially billions of dollars in additional capital and compliance costs. And third, he pointed to official acceptance throughout the EU of the US insurance supervisory framework, “which benefits all US-based insurance groups and provides valuable support for the US regulatory system that can be leveraged in current and future international negotiations and regulatory dialogues”. He urged the administration to promptly sign the covered agreement, as any delay could result in elimination of the benefits US-based companies would receive under the agreement. For example, he said: “As a matter of good faith, the EU is currently forbearing from enforcing its Solvency II rules and regulations on US-based companies doing business in the EU in anticipation of the parties’ signature of the covered agreement. However, this forbearance is not unlimited.” He told the Senate hearing that the Covered Agreement’s provisions eliminating local presence requirements are the “lynchpin” for US reinsurers to be able to write EU business. If the agreement is not signed, he warned, these US companies will not be able to renew, much less write any new, business in the EU without first going through the regulatory processes necessary to create branches and/or subsidiaries in multiple EU member states. Mr Sapnar pointed out that the agreement achieved significant benefits for the US without any requirements that the US adopt any Solvency II requirements. He noted that the preamble of the covered agreement makes it clear that the US does not intend to adopt any Solvency II requirements and that the EU understands this: “Sharing the goal of protecting insurance and reinsurance policyholders and other consumers, while respecting each party’s system for insurance reinsurance supervision and regulation.” He addressed some of the concerns raised by the NAIC about the lack of formal consultation. Ted Nickel, Wisconsin insurance commissioner and NAIC president, had previously testified before Congress that state regulators were assured they would have direct and meaningful participation in the Covered Agreement process, but the small group of state regulators included in the process were merely observers. Mr Sapnar said: “One process issue that should be addressed is formalising the role of state insurance regulators, who are essential to the negotiation and implementation of a covered agreement. It is important to note, however, that state regulators did have a formal substantive role in this covered agreement process.” He went on to point out that former Federal Insurance Office (FIO) director Michael McRaith testified at the House Financial Services Committee Housing & Insurance Subcommittee Hearing that state insurance regulators attended and participated, often in person, in every negotiation. Mr McRaith also testified that state regulators promptly received every EU document and that there were conference calls for the FIO and United States Trade Representative to receive their input before documents were sent to the EU. And he added that the NAIC’s Mr Nickel testified at the same House hearing that NAIC suggestions were incorporated into the drafts sent to the EU.

US insurance industry vigorously defends US-EU covered agreement

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