With respect to reinsurance, the covered contract removes local guarantees and requirements for presence as the terms of a reinsurance contract. Therefore, it prohibits an American regulator, an EU, from accepting to reinsurers either guarantees or local presence requirements that it does not impose on a local US company that accepts the reinsurer as a condition of a reinsurance contract, and vice versa. There are certain financial and contractual conditions that need to be met, but this should not be a problem for international insurance companies. On 12 December 2018, the Ministry of Finance and the USTR announced their intention to sign a covered agreement with the UK, which would extend the terms, which are almost identical to the EU-covered agreement, to insurers and reinsurers operating in the UK after Brexit. The UK Covered Agreement was signed on 19 December 2018. The covered agreement between the United States and the EU was the result of lengthy negotiations that the FIO and USTR had communicated to the US Congress on 20 November 2015. Similarly, the European Council had previously ordered the European Commission to negotiate an agreement with the United States. It is difficult to say with certainty whether the Uk will be able to secure a covered agreement with the United States or the terms of an agreement. The consensus is that an agreement is more than likely, but the UK`s agreement with the EU could complicate a deal with the US. Historically, the United States has been more important than the EU for the development of the London market and the Us may be focusing again. The United Kingdom has a recognized regulatory system and will likely provide the equivalence of Solvency II, but the alignment of British regulations with the United States may be wise. After Brexit, there will be an appetite to expand and expand into new markets, so insurers could try to expand their connections.
Whatever the outcome and the first phase of change, there is no indication that the UK cannot adapt and continue to prosper. Finally, it should be noted that the covered agreements apply to cross-border reinsurance between US and EU/UK insurers and do not apply to reinsurers and reinsurers operating from or from other countries. In order to discourage future covered agreements with other countries, NAIC has adopted further changes to reinsurance models that extend the guarantee provisions of the covered agreement to reinsurers residing in “reciprocal jurisdictions” within or outside the EU or the UK. The Federal Insurance Office Act of 2010 (FIO Act), passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), established the Federal Insurance Office (FIO) within the U.S. Treasury Department and authorized the U.S. Treasury and the United States to negotiate “covered agreements” with one or more foreign governments or authorities for the recognition of prudential measures relating to insurance or reinsurance activities, which achieve a level of protection for insurance or reinsurance consumers, which essentially corresponds to the level of protection acquired by the state`s insurance or reinsurance rules. As soon as the covered agreements take full effect, they will remove warranty and local presence requirements for qualified U.S. reinsurers operating in the European Union and UK insurance market, and eliminate the requirement for guarantees for eligible reinsurers in the EU and the United Kingdom that operate in the U.S.
insurance market as a precondition for reinsurance credits in the United States. If, as stipulated in the agreements, U.S. states take appropriate steps to establish group capital standards, the covered agreements provide that U.S. insurance companies operating in the EU and the United Kingdom are monitored only by the U.S. insurance authorities in the U.S. insurance supervision and that the U.S. operate in the United States.