U.S. House Insurance Subcommittee To Assess US-EU Covered Agreement on Insurance, Reinsurance - Colodny Fass

U.S. House Insurance Subcommittee To Assess US-EU Covered Agreement on Insurance, Reinsurance

Date Published: 02-14-2017


The U.S. House Financial Services' Subcommittee on Housing and Insurance will hold a hearing entitled "Assessing the U.S.-EU Covered Agreement" this Thursday, February 16, 2017 at 10 a.m.

The hearing will examine the January 13, 2017 announcement from the U.S. Department of Treasury ("Treasury") that the United States and the European Union ("EU") completed negotiations on a Covered Agreement entitled, "Bilateral Agreement between the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance."

This will be a one-panel hearing with the following witnesses:

  • The Honorable Ted Nickel, Commissioner, Office of the Commissioner of Insurance, State of Wisconsin, on behalf of the National Association of Insurance Commissioners
  • Mr. Charles Chamness, President and CEO, National Association of Mutual Insurance Companies
  • Ms. Leigh Ann Pusey, President and CEO, American Insurance Association
  • Mr. Michael T. McRaith, Former Director, Federal Insurance Office ("FIO")

Group supervision features of the Covered Agreement include:

  • The group supervision practices described in the Covered Agreement apply only to U.S. and EU insurance groups operating in both territories.
  • U.S. insurance groups operating in the EU will be supervised at the worldwide group level only by the relevant U.S. insurance supervisors. EU insurers operating in the United States will be supervised at the worldwide group level only by the relevant EU insurance supervisors.
  • U.S. insurance groups operating in the EU will not have to meet EU worldwide group capital, reporting, or governance requirements.
  • With respect to risks from outside their territories that threaten operations and activities within their territories, supervisors in both the United States and the EU can request information from insurance groups from the other party, and take appropriate action within their territory to protect policyholders and financial stability.

Reinsurance features of the Covered Agreement include:

  • The U.S. states have 60 months (five years) to adopt reinsurance reforms removing collateral requirements for EU reinsurers that meet the prescribed consumer protection conditions.  The FIO will begin the process of making potential pre-emption determinations of state laws that are inconsistent with the Covered Agreement terms after 42 months.
  • For a U.S. or EU reinsurer, conditions regarding financial strength, market conduct (e.g., whether the reinsurer pays claims promptly), and reporting requirements are the bases for relief from collateral and local presence requirements.  Failure to meet these conditions and requirements can result in the re-imposition of collateral or local presence requirements.  Other conditions for reinsurers include consent to service of process and commitment to the payment of final, enforceable judgments.
  • Within 24 months, EU Member States will revise existing laws so that U.S. reinsurers can operate in the EU without establishing a branch or a subsidiary.  For those U.S. reinsurers that have not yet established a branch or subsidiary but have been operating in the EU, local presence requirements will not be imposed.


For nearly 150 years, U.S. insurance companies of every kind-including property-casualty, life, reinsurance, health, and auto-have been regulated primarily by the states.  Congress and the states have occasionally reviewed the effectiveness of the state-based regulation of insurance and coordinated efforts to achieve greater regulatory uniformity.  In 1945, Congress passed the McCarran-Ferguson Act (15 U.S.C. §§ 1011 et seq.), which confirmed the states' regulatory authority over insurance except where a federal law expressly provides otherwise.

The Dodd Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank") enlarged the federal government's role in the insurance industry by creating a federal office specifically tasked with insurance matters.  Dodd Frank established an FIO office at the Treasury Department and charged the director of the FIO with representing the interests of U.S. insurers during the negotiation of international agreements and advising the United States Trade Representative ("USTR") during trade negotiations.

The Federal Insurance Office Act of 2010 authorizes the Treasury and the USTR jointly to negotiate a covered agreement with one or more foreign governments, authorities, or regulatory entities.  A covered agreement is a "written bilateral or multilateral agreement regarding prudential measures with respect to the business of insurance or reinsurance."

After such an agreement, the FIO has specific authority to pre-empt state laws that are inconsistent with the agreement and result in less favorable treatment "of a non-United States insurer domiciled in a foreign jurisdiction that is subject to a covered agreement than a United States insurer domiciled, licensed, or otherwise admitted in that State."

Note that such pre-emption, however, may not apply to any state insurance measure that governs any insurer's rates, premiums, underwriting, or sales practices.  Although the FIO and USTR must consult with Congress on the negotiations, the statute does not require specific authorization or approval from Congress for a covered agreement.

In a November 20, 2015 letter to Congress, the Treasury and the USTR announced their intention to initiate negotiations to enter into a covered agreement with the European Union, stating that "the United States and the EU are the two largest insurance markets in the world and both markets present important opportunities for organic and acquisition-based growth for insurers and reinsurers.  A covered agreement with the EU would level the regulatory playing field for U.S.-based insurers and reinsurers operating there, and further confirm that the existing U.S. insurance regulatory system serves the goals of insurance sector oversight, policyholder protection, and national and global financial stability."

On January 13, 2017, the Treasury and the USTR notified Congress that they concluded negotiations with the EU on a covered agreement and provided final legal text of the agreement, which began the 90-day Congressional layover period outlined in the statute.  

The covered agreement addresses three areas of prudential insurance supervision:  group supervision, reinsurance, and exchange of information between supervisory authorities.


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