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Covered Agreement

Last Updated 1/28/2019

Issue: A covered agreement provides stand-by authority for the U.S. Department of the Treasury and the Office of the U.S. Trade Representative (USTR) to address, if necessary, areas where U.S. state insurance laws or regulations treat non-U.S. insurers differently than U.S. insurers, such as reinsurance consumer protection collateral requirements. A covered agreement can serve as a basis for preemption of state law only if the agreement relates to measures substantially equivalent to the protections afforded consumers under state law.

On September 22, 2017 the U.S. Treasury Department, USTR, and the European Union announced they had formally signed a Covered Agreement. The agreement requires states to eliminate reinsurance collateral within 5 years or risk preemption. In exchange, the EU will not impose local presence requirements on U.S. firms operating in the EU, and effectively must defer to U.S. group capital regulation for U.S. entities of EU-based firms.

Historically, U.S. state insurance regulators have required non-U.S. reinsurers to hold 100% consumer protection collateral within the U.S. for risk assumed from U.S. insurers. Foreign reinsurers' regulators and politicians have objected to this requirement, arguing it reduces capital available for other purposes. State insurance regulators recognize variation across states makes planning for consumer protection collateral liability more uncertain, and thus potentially more expensive. As such, they have been working through the NAIC to reduce consumer protection collateral requirements in a consistent manner, commensurate with the financial strength of the reinsurer and the quality of the regulatory regime that oversees it.

In 2011, the NAIC passed amendments to the Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786). In adopted states, the amendments allow certified foreign reinsurers to post significantly less than 100% consumer protection collateral for U.S. claims. To date, 48 states have passed legislation to implement the revised Model #785 and Model #786, which became an accreditation requirement Jan. 1, 2019.

Status: State regulators were pleased the Treasury Department and USTR recently released a U.S. policy statement clarifying their interpretation of the Covered Agreement in several key areas including capital, group supervision, reinsurance, and the Joint Committee. These clarifications affirm the primacy of state regulation.

Additionally, the NAIC is currently revising models #785 and #786 to comport with the provisions of the covered agreement. Revisions are also anticipated to provide reinsurers domiciled in non-EU NAIC qualified jurisdictions with reinsurance collateral reductions similar to those under the Covered Agreement regarding group supervision, group capital, information-sharing and enforcement. Non-EU NAIC qualified jurisdictions currently include Bermuda, Japan, and Switzerland.

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Additional Resources

News Releases

NAIC Statement on Covered Agreement Negotiation
November 2017, NAIC Press Release

NAIC Responds to Covered Agreement
September 2017, NAIC Press Release

U.S. Signing Agreement
September 2017, Office of the U.S. Trade Representative Press Release

U.S. and EU Covered Agreement
September 2017, U.S. Department of Treasury

The Year Before Us: Perspectives from NAIC President Ted Nickel
March 2017, CIPR Newsletter

NAIC Raises Concerns Before Congress on International Insurance Deal
February 2017, NAIC Press Release

NAIC Urges Congress to Protect U.S. Interests in International Insurance Negotiations
September 2016, NAIC Press Release


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