United States: NAIC Updates – October 2017

Status of Covered Agreement Between EU and U.S.

The NAIC Reinsurance (E) Task Force ("RTF") held its most recent open meeting on Monday, August 7, 2017 during the NAIC 2017 Summer National Meeting in Philadelphia, Pennsylvania. During the meeting, the RTF heard a status report on the proposed Bilateral Agreement Between the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance ("Covered Agreement"), which was subsequently executed by the United States and the European Union on September 22, 2017. The Covered Agreement will "eliminate reinsurance requirements for EU reinsurers that maintain a minimum amount of own funds equivalent to $250 million and a solvency capital ratio (SCR) of 100% under Solvency II," and allow U.S. reinsurers to do business in the EU without local presence so long as they "maintain capital and surplus equivalent to €226 million with an RBC of 300% of Authorized Control Level."

As discussed below, the NAIC had initially voiced opposition to the Covered Agreement during the negotiation process between the U.S. and the EU. However, the September 22, 2017 policy statement released by the U.S. in tandem with its execution of the Covered Agreement seems to have assuaged many of the NAIC's concerns.


Prior to the execution of the Covered Agreement, the NAIC participated in a hearing on the Covered Agreement before the House Financial Services Committee's Subcommittee on Housing and Insurance on February 16, 2017, and also submitted a letter to Treasury Secretary Steven Mnuchin on March 15, 2017. During the negotiation process, the NAIC consistently voiced numerous concerns with the form of the Covered Agreement. Over the last several years, the NAIC prioritized the reduction of reinsurance consumer protection collateral requirements, and the majority of states have passed legislation to implement the NAIC Credit for Reinsurance Models. Accordingly, if Models #785 (Credit for Reinsurance Model Law) and #786 (Credit for Reinsurance Model Regulation) were adopted as accreditation standards, the NAIC believed the states would already have accomplished the goals of the Covered Agreement.

In its March 15 letter, the NAIC urged caution in considering the terms of the Covered Agreement, noting the following concerns:

1. Elimination of Collateral Requirements: The NAIC letter noted that states had taken measures to reduce, but not eliminate collateral requirements, relying on a risk-based approach with collateral requirements ranging from "0% to 100% based on an assessment of the financial strength of the reinsurer and quality of its supervision." Noting that the conditions required of EU insurers under the Covered Agreement "differ materially from current state credit for reinsurance laws," the NAIC expressed concern that "states may have to take alternative measures to ensure that ceding U.S. insurers, and, by extension, U.S. policyholders are protected from any risks posed by reinsurance counterparties."

2. Group Capital Assessment: The Covered Agreement "suggests the states should impose a capital requirement . . . at the group level of a U.S. insurer, rather than at the legal entity level." As the NAIC does not currently require additional capital at either level, the NAIC is concerned that this requirement could result in increased costs for U.S. insurers.

3. Group Supervisory Framework: The Covered Agreement could disrupt "existing group supervisory authorities," as it "appears to place conditions upon the use of longstanding regulatory authorities to protect U.S. consumers." Essentially, the Covered Agreement would limit supervision of EU reinsurers, even those operating in the U.S., to EU supervisory authorities.

Progress of the Covered Agreement

As required by Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), the Covered Agreement was submitted to Congress on January 13, 2017 by the U.S. Department of Treasury ("Treasury Department") and the Office of the U.S. Trade Representative ("USTR"). In an open meeting on April 9, 2017, the RTF explained that if Congress took no action against the Covered Agreement within the 90-day congressional review period required by Dodd-Frank, the Treasury Secretary would be authorized to execute the agreement. On April 13, 2017, the 90 days elapsed, and Congress had thus far not taken any action.

Against the NAIC's advice, plans to execute the Covered Agreement continued to move forward under the Trump administration. On July 14, 2017, the Treasury Department and the USTR issued a joint statement of intent to sign the Covered Agreement in the near future, and on September 22, 2017 both the United States and the European Union executed the Covered Agreement. That same day, the U.S. released a policy statement to offer clarity on some of the Covered Agreement's more contentious provisions:

With regard to the elimination of collateral requirements, the U.S. policy statement clarified that the Covered Agreement "does not prevent a state insurance regulator from imposing non-collateral requirements that do not have substantially the same regulatory impact as collateral requirements as conditions for ceding companies to enter into reinsurance agreements with EU reinsurers or to allow credit for such reinsurance, if the state insurance regulator applies the same requirements in the case of reinsurance agreements with U.S. reinsurers domiciled in that state."

As to group capital requirements, the "United States expects that the NAIC's group capital calculation will satisfy the 'group capital assessment' condition" of the Covered Agreement, and the Covered Agreement "does not require a group capital assessment with respect to U.S. insurance groups that do not have operations in the EU."

With regard to supervisory requirements, the policy statement also clarified that "U.S. insurance supervisors are able to obtain information about the EU parent of insurers that are active in the United States, if necessary, to protect against serious harm to U.S. policyholders, or a serious threat to financial stability, or a serious impact on the ability of an insurer to pay its claims in the United States."

In addition, the Covered Agreement provides for a "Joint Committee" which "will serve as a forum for consultation and to exchange information on the administration and proper implementation of the [Covered] Agreement." The policy statement recognized the important role of U.S. state insurance regulators, noting that because they "will be largely responsible for implementing the Agreement, the United States is committed to the direct involvement of state insurance regulators, including their staff, in the work of the Joint Committee. To this end, the United States will consult with state insurance regulators, and will establish a robust consultative process to ensure that discussions in the Joint Committee will be well-informed of the views and interests of state insurance regulators."

This policy statement was well-received by the NAIC, and seems to have addressed several of the NAIC's concerns. Shortly after the policy statement was issued, NAIC President and Wisconsin Insurance Commissioner Ted Nickel released a statement on the NAIC website noting that the NAIC is "pleased to see the Treasury and USTR clarify their interpretation of the covered agreement," and that the NAIC has "worked closely with Treasury and USTR on these clarifications and appreciate[s] their affirmation of the primacy of state regulation." However, the NAIC generally disfavors the use of covered agreements as a mechanism to set U.S. insurance policy and, in his own statement in response to the U.S. policy statement, NAIC CEO Mike Consedine thanked the Treasury and USTR for "working constructively" to "resolve [NAIC] concerns with the [C]overed [A]greement," but "caution[ed] against using this mechanism in the future."

Looking Forward

Now that the agreement has officially gone into effect, U.S. states have "five years to implement its reinsurance provisions or face potential preemption by the Federal Insurance Office." The RTF noted, and the U.S. policy statement confirmed, that the Covered Agreement will not apply retroactively to contracts that are already in force, and will only be available to new or renewal business or newly amended contracts involving only prospective reinsurance. While it reduces the reinsurance collateral to 0% for many EU reinsurers, the Covered Agreement retains "several important elements from the NAIC's credit for reinsurance models, including requirements with respect to enforcement of final U.S. judgments, service of process, financial reporting requirements, prompt payment of claims and solvent schemes of arrangement." Finally, now that the Covered Agreement has been executed, the NAIC plans to form a specific structure to oversee its implementation along with the RTF, which will also play a crucial role in the process.

Qualified Jurisdictions

At its Summer Meeting on August 7, 2017, the RTF heard the report of the Qualified Jurisdiction (E) Working Group. At the 2016 Summer National Meeting, the Working Group had been charged with the task of studying and reporting on the implementation of Solvency II by the European member-states, and to assess the potential impact on the Qualified Jurisdiction Status of France, Germany, Ireland, and the UK. The Working Group was advised by NAIC leadership to hold off on any public recommendations given the uncertainty surrounding the Covered Agreement, which, if executed, would render the Qualified Jurisdiction status of EU member states moot.

Given the public statement of intent to sign the Covered Agreement issued by the Treasury Department and USTR on July 14, 2017, the RTF determined that the Working Group should discontinue work on the report unless and until it becomes relevant again. As the Covered Agreement was officially executed by both the U.S. and EU on September 22, 2017, it is unlikely that work on the report will be reinitiated.

Despite the execution of the Covered Agreement, the Working Group's charge is still relevant in at least one respect. As the Working Group noted at the RTF's August 7, 2017 meeting, the CoveredAgreement includes a five-year grace period for U.S. states to come into compliance. Accordingly, the states now have 60 months to adopt reinsurance reforms removing collateral requirements for EU reinsurers that meet the prescribed consumer protection conditions, and until the states have done so, the Qualified Jurisdiction status of the EU member states will remain relevant.

The designation as a Qualified Jurisdiction is valid for five years, and all seven current Qualified Jurisdictions (Bermuda, Japan, Switzerland, France, Germany, Ireland, and the UK) were approved as of January 1, 2015. As such, each must be re-evaluated no later than December 31, 2019. Because the five-year compliance period of the Covered Agreement will still be in effect at that time, the RTF charged the Working Group with performing a re-evaluation of all seven Qualified Jurisdictions, including those in the EU, before the current designations expire on December 31, 2019.

Finally, the Working Group reported that it has received an application from another EU member state requesting designation as a Qualified Jurisdiction. It was noted that the "evaluation process is very time-consuming and can take up to a year to complete," but because the Covered Agreement has essentially validated Solvency II as an effective supervisory system, the Working Group may be able to make a recommendation as early as the Fall National Meeting in December of 2017, with a proposed effective date of January 1, 2018. Taking into account the five-year compliance period of the Covered Agreement, the RTF agreed that evaluation of the EU applicant as a potential Qualified Jurisdiction remained worthwhile, and directed the Working Group to proceed in preparing a recommendation.

Download >> NAIC Updates – October 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions