The National Association of Insurance Commissioners (NAIC) has commented on the proposed covered insurance and reinsurance agreement between the U.S. and the European Union (EU), highlighting areas of ambiguity and calling for more work to be done to ensure a fair, and positive outcome.
In January 2017 it was announced that the U.S. and the EU had, after a year of negotiating, agreed on a deal designed to boost the $3 billion transatlantic insurance and reinsurance industry. The deal proposes to remove certain regulatory and capital requirements for re/insurers, described by some as key to “levelling the playing field.”
Now, in a letter to Secretary Mnuchin, U.S. Department of the Treasury, the NAIC has called for more work to be done on the agreement amidst certain ambiguities and potential concerns.
The NAIC draws on the fact the agreement entirely eliminates collateral requirements, underlining that in recent times states have lowered collateral requirements, although these have not been eliminated.
“While there are conditions in the Agreement that reinsurers would have to meet to avoid being subject to collateral requirements, several of those conditions differ materially from current state credit for reinsurance laws,” says the NAIC.
The differences, explains the NAIC, suggests that states may be required to undertake additional action to ensure ceding U.S. insurers and U.S. policyholders are protected against risks posed by reinsurance counterparties.
A section of the proposed agreement also requires a group capital assessment, although the NAIC explains that this is ambiguous, and it’s unclear whether “ongoing work to develop a group capital calculation will satisfy the provisions or the EU’s interpretation of it.”
Another potential issue with the agreement that requires greater attention, says the NAIC, is that it imposes a group supervisory framework that varies from existing group supervisory authorities.
“Finally, we remain concerned the Joint Committee established by the Agreement will invite perpetual renegotiation of the Agreement’s terms that could significantly impact the insurance sector,” explains the NAIC.
The NAIC proposes to work with the Treasury to address potential issues and ambiguities, underlining a need to work together to ensure “appropriate confirmation of the EU’s interpretation of the Agreement, and to discuss a path forward that addresses the treatment of U.S. insurers operating within the EU while also ensuring that appropriate protections remain in place for U.S. insurers and consumers.”