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Covered Agreement

Last Updated 2/27/2020

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.

Status: On June 25, 2019, the NAIC Executive (EX) Committee and Plenary adopted revisions to the Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786), which implement the reinsurance collateral provisions of the Covered Agreements with the European Union (EU) and the United Kingdom (UK). These revisions create a new type of jurisdiction, which is called a Reciprocal Jurisdiction and eliminate reinsurance collateral requirements and local presence requirements for EU and UK reinsurers that maintain a minimum amount of own-funds equivalent to $250 million USD and a solvency capital requirement (SCR) of 100% under Solvency II. The revisions also provide Reciprocal Jurisdiction status for accredited U.S. jurisdictions and Qualified Jurisdictions if they meet certain requirements in the credit for reinsurance models. U.S. states must adopt these revisions prior to September 1, 2022 or face potential federal preemption by the Federal Insurance Office. To avoid preemption, the laws must be enacted prior to September 1, 2022, and must adhere exactly to the models as they have been adopted by the NAIC.

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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


Media queries should be directed to the NAIC Communications Division at 816-783-8909 or

Media queries should be directed to the NAIC Communications Division at 816-783-8909 or

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