The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Treasury’s Federal Insurance Office (FIO) to monitor all aspects of the insurance sector. Acknowledging the need for cross-border co-operation given the increased globalization of the insurance markets, on November 20, 2015, the FIO and U.S. Treasury Department began working with the European Union (EU) and reached a joint signed agreement January 13, 2017 regarding insurance and reinsurance supervision and regulation.
This agreement will allow European reinsurers to sell in the U.S. without putting up collateral or be subject to additional capital requirements. In addition, it keeps intact state regulations for U.S. based insurers and EU oversight for insurers from the EU. Under current regulation, unless a foreign reinsurer is classified as a certified reinsurer, foreign reinsurers are at a disadvantage compared to their U.S. competitors because they are required to put up collateral when they assume business in order for a U.S. based insurance entity to receive reinsurance accounting treatment. On the other side of the Atlantic, this agreement is intended to shield U.S. insurers from having to comply with Solvency II and EU capital requirements.
This project focused on the need for co-operation between the U.S. and EU and the increased globalization of insurance markets. With many insurers and reinsurers operating in both territories, the need to assess a group capital requirement of the parent organization has become a greater need. This agreement allows for the following:
- Determines a group capital requirement based on the domicile of the head office.
- Insurance or reinsurance groups will be supervised by the regulators where their home office is domiciled and will determine solvency, capital, governance and reporting based on its home office requirements.
There are certain benchmarks insurers and reinsurers will need to maintain and required regulatory notifications when or if certain thresholds are not met. Generally, companies will need to maintain the following thresholds to support reinsurance accounting treatment:
|U.S. Based Insurers and Reinsurers||EU Based Insurers and Reinsurers|
|Capital and Surplus||250 million||226 million Euro|
|RBC, SCR||300||100% under Solvency II|
Since this is a federal agreement and the states are responsible for regulating insurance companies, the implementation of this agreement will be subject to state approval. The agreement encourages each U.S. State and EU territory to promptly adopt policy and take measures to implement this agreement and gives a time frame of 60 months to enact necessary legislation to conform existing laws to the provisions of this agreement. The agreement calls for U.S. States to reduce collateral for reinsurance by 20% per year beginning with the period beginning January 1, 2017.
As this agreement works its way into statutory regulations, JLK Rosenberger will continue to keep you informed on the progress and implementation hurdles that are likely to follow.