Agreement presented to US Congress on Friday comes a week before Trump inauguration
The US and EU have signed a deal that could release $40bn that European reinsurers must hold as collateral in the US.
The deal, which is the culmination of a four-year process, was made possible by the US Dodd-Frank reforms, which incoming US president Donald Trump has pledged to dismantle. It was presented to the US Congress on Friday, its last day in session ahead of Mr Trump’s inauguration next Friday.
The two-way deal, known as a covered agreement, will free many EU-based reinsurers from holding collateral against the business that they write in the US. The requirement has long been a thorn in the side of the European reinsurers.
In exchange, US reinsurers receive a promise that they will not have to post collateral when operating in Europe. There are also limits on the extent to which European regulators can oversee US reinsurers, and vice versa.
Leigh Ann Pusey, chief executive of the American Insurance Association, a trade body, said: “In recent months, US insurance groups with operations in Europe have increasingly become subject to discriminatory prudential measures due to the implementation of Solvency II. Under today’s agreement, EU supervisors . . . allow US insurers and reinsurers to compete in their markets without the costly and duplicative regulations being imposed on them under Solvency II.”
Munich Re, one of Europe’s biggest reinsurers, welcomed the agreement but cautioned that it had not yet seen all the details.
Chris Jones, Director of Legal and Market Services at the International Underwriting Association, which represents insurers operating from London, said: “A more level playing field can now be established between EU and US reinsurers, both in terms of collateral treatment and mutual recognition of two powerful and respected trading blocs.”
He added that it “sends a powerful message to other jurisdictions that protectionist regulation is not in the long-term interests of clients.”
The deal was agreed by the European Commission and the Federal Insurance Office, a US body created by the 2010 Dodd-Frank Act. US insurance companies are usually regulated at the state, rather than federal, level but the FIO has the power to enforce its agreements on state bodies.
Valdis Dombrovskis, European Commission vice-president, said it was a win-win deal “set to benefit insurers, reinsurers and policyholders on both sides of the Atlantic”.
Congress approval is required and the deal could take up to five years to come into force. In Europe, the agreement requires Parliamentary approval.
Copyright The Financial Times Limited 2017. All rights reserved