The US and the European Union (EU) have signed an agreement to streamline the insurance and reinsurance regulations.
The agreement covers reinsurance, group supervision, and exchange of insurance information between supervisory authorities in the US and the EU, which will help boost consumer protection.
The agreement is aimed at a phased removal of the requirement of collateral for the EU reinsurers operating in the US, a condition which was not applicable to reinsurers of the US. The collateral requirements will be removed within 60 months from the date of signing of the agreement.
The EU said that the removal of collateral requirement will increase the investment capacity of the firms.
“EU reinsurers estimate that they have about $40bn of collateral posted in the US, which could instead be invested to create jobs and growth,” the EU said in a statement.
Reinsurers will have to fulfill financial strength and business conduct conditions stipulated in the agreement. US insurers and reinsurers in the EU will not be subject to Solvency II requirements.
In addition, US reinsurers in the EU will not be required to establish a local presence in the EU, and there will not be any need for EU reinsurers to commit to local presence in the US.
Representatives of the US and the EU will hold regular meetings within a joint committee to discuss the implementation of the agreement and sort out differences, if any, through a mechanism of consultation.
The agreement will cover reinsurance contracts that are entered into, amended or renewed after the date of effect of removal of collateral in the US state concerned.
As the EU supervisors will look after worldwide group supervision of EU groups operating in the US, the EU groups will have to submit only one group-level Own Risk and Solvency Assessment (ORSA) to the supervisor in the EU, avoiding a local ORSA from the group.
Another benefit will be in the form of increased information flow between the supervisors in the EU and the US. This will eliminate the need to collect information twice from EU insurers or reinsurers operating in the US.
Greater access to supervisory information on US groups in the EU will result in better protection to EU consumers.