Once the covered agreements enter into full force, they will eliminate the guarantee and local presence requirements for qualified US reinsurers operating in the EU and UK insurance markets and the guarantee requirement for EU and UK qualified reinsurers operating in the US insurance market, remove as a condition for their U.S. sellers to borrow for reinsurance. In addition, if U.S. states take appropriate steps to establish group capital standards, as provided for in the agreements, the covered agreements provide that U.S. insurance groups operating in the EU and the United Kingdom will be supervised globally only by the U.S. insurance authorities and that EU and U.K. insurers operating in the U.S. globally will only be supervised by the U.S. insurance authorities. the insurance supervisory authorities of the EU and the United Kingdom. On January 13, 2017, the then U.S. Secretary of the Treasury and the former U.S.
Trade Representative (USTR) informed Congress that they had negotiated a covered agreement with the European Union (EU). After a period of uncertainty when it was unclear whether the new Trump administration would accept the hedging agreement negotiated by the outgoing Obama administration, the US Treasury and the USTR announced on July 14, 2017 their intention to sign the hedging agreement that took place on September 22, 2017. Following the signing of the covered agreement, the US Treasury and the USTR also issued a joint policy statement on its implementation, clarifying the US position on the interpretation of certain provisions of the agreement. In the context of group supervision, the agreement also allows reinsurance groups operating on the market of other countries to be subject to global supervision of insurance groups only by national supervisory authorities. This essentially prevents EU insurance supervisors from applying solvency and capital standards at Solvency II group level to US insurance groups. Although the text of the covered agreement is final and binding, the agreement provides for a mechanism in which the parties meet regularly to discuss its effectiveness and discuss the need for amendments. From the date of entry into force until 22 September 2022, the supervisory authorities of the other Party may, after mandatory consultation with an insurance or reinsurance group established or established in the other Party, impose a group capital assessment or required group capital at the level of the global parent undertaking. Finally, it is important to note that the covered agreements apply to cross-border reinsurance between US and EU/UK insurers and do not apply to transferors and reinsurers operating from or in other countries. In order to avoid future covered agreements with other countries, the NAIC has made further changes to the reinsurance models that extend the coverage provisions of the covered agreement to reinsurers established in “mutual jurisdictions”, with the exception of the EU or the UK. At the 2019 NAIC National Meeting, Bermuda, Japan and Switzerland were approved as mutual jurisconsultations – meaning that reinsurers based in these jurisdictions will effectively be on an equal footing with reinsurers established in the EU/UK as soon as states adopt the revised Credit for Reinsurance Model Law and Regulation.