Following reports earlier in 2017 that the European Union (EU) and the U.S. had reached an agreement designed to improve the $3 billion transatlantic reinsurance industry, law firm Eversheds Sutherland has warned that it’s unclear how the Trump administration views the proposed deal.
Under the new Covered Agreement, which was announced in early January and that still requires approval from the European Parliament and U.S. Congress, U.S. re/insurers that operate in the EU stand to benefit from the removal of certain regulatory stipulations, while EU companies should benefit from capital requirement adjustments.
Talks regarding the terms of the deal had been ongoing for more than a year before any agreement was reached, but now, international law firm Eversheds Sutherland has highlighted uncertainty surrounding the agreement under the new Trump administration.
“It is unclear what view the current administration will take regarding the Covered Agreement and if it will be allowed to stand, particularly given the administration’s recent pronouncements regarding a reassessment of the Dodd-Frank Act,” said the firm.
The firm states that the agreement could stand to benefit EU market players over their U.S. counterparts during a period when the Trump administration has said it might look to renegotiate trade agreements that it views as a disadvantage to U.S. interests.
Further uncertainty regarding the U.S. and Solvency II equivalence is noted by the law firm, which states that while the U.S. has been granted equivalence in respect of solvency calculations for the next decade, group supervision and reinsurance equivalence under Solvency II were both addressed by the deal.
“As a result, to the extent to which the Covered Agreement is implemented, there may be arguments either to expedite the process for providing the U.S. full equivalence or, equally, less of an incentive to gain full equivalence on the basis that the Covered Agreement largely provides the same benefits,” says the firm.
Should the new administration in the U.S. approve of the $3 billion transatlantic reinsurance deal Eversheds Sutherland expects regulators in the states to establish legislation to give effect to the agreement. At the same time, the law firm predicts EU member states will have to revise their Solvency II implementing guidelines, where they aren’t compatible with the aims of the covered agreement.
With the UK set to leave the EU and the new Trump administration fuelling widespread financial and economical uncertainty, only time will tell what impacts this has on the proposed reinsurance agreement between the EU and the U.S.
Regarding Brexit, Eversheds Sutherland says “it is also quite possible that the contents of the Covered Agreement will be incorporated into a wider bilateral trade agreement between the UK and the U.S. in due course.”