NAIC accused of deviating from spirit of Covered Agreement
Insurance Europe’s Reinsurance Advisory Board (RAB), a representative body for the European reinsurance industry, has accused the US National Association of Insurance Commissioners (NAIC) of deviating significantly from the original language of the bilateral agreement on re/insurance prudential measures, concluded between the EU and US in 2017, in its draft implementation plans.
A letter drafted by Ulrich Wallin, chairman of the executive board, Hannover Rück and chair of RAB, expresses concerns that the current draft NAIC proposals do not appropriately reflect the bilateral agreement.
A key part of the pact, commonly referred to as the Covered Agreement, is that it eliminates the requirement for EU re/insurers writing business in the US to post collateral.
RAB argues that the current proposals foresee a more limited scope of application of zero collateral than in the agreement and give a significant amount of discretion to US state supervisors in areas that were stipulated in the agreement, such as all EU member states receiving all agreed benefits.
The letter also stresses that European reinsurers call for an immediate start to the phased implementation of reduced collateral, in line with the agreement. It calls for the NAIC Reinsurance Task Force and individual states to take the necessary steps to ensure appropriate and swift implementation of the provisions of the bilateral agreement, respecting the timelines agreed between the EU and the US.
The letter notes that the RAB has been supportive of the Covered Agreement and appreciates the NAIC’s commitments towards the agreement’s implementation. It also notes that it was encouraging to see that many stakeholder comments in response to the first exposure drafts were taken on board.
However, it expresses concern that some of the new language in the most recent drafts deviates significantly from the language of the bilateral agreement. “This leads to legal uncertainty and potential inefficiencies from the perspective of European reinsurers,” the letter says.
“In the RAB’s view it is important for the Model Law and the Model Regulation to reflect the fundamental policy decision that has been made, ie, that going forward, companies reinsuring with reinsurers in reciprocal jurisdictions do not need collateral protection for reinsurance agreements entered into (meaning negotiated, amended or renewed) after the effective date of the new rules.”
RAB is represented at CEO level by seven major reinsurers: Gen Re, Hannover Re, Lloyd’s of London, Munich Re, Partner Re, SCOR and Swiss Re, with Insurance Europe providing the secretariat. Together, the RAB member companies account for approximately 60 percent of worldwide reinsurance business.
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