Covered Agreement Signed Between UK, US
Replicating an earlier deal in 2017 between the European Union (E.U.) and the United States (U.S.), the latter in January 2019 signed a “covered agreement” with the United Kingdom (UK) that protects their respective international insurers and reinsurers when doing business with each other.
The new covered agreement basically provides for a limited but very useful form of mutual recognition of reinsurance companies and of (re)insurance regulators.
The existing E.U.-U.S. covered agreement applies to E.U.-U.S. cross-border reinsurance. It regulates reinsurance; group supervision; and the exchange of information between supervisors. Importantly, under the covered agreement, reinsurers are not required to post collateral or have a local presence in the other country or state.
After its exit from the European Union in March 2019, the UK no longer will benefit from the E.U.-U.S. agreement. As a result, multinational pooling arrangements and employee benefits captives that include reinsurance contracts between the U.S. and the UK will become non-compliant overnight unless the accepting reinsurer had taken steps to ensure its own proper recognition by the ceding (re)insurer’s regulator, a lengthy, complex, costly, and ultimately uncertain matter. The new U.S.-UK covered agreement essentially replicates the existing E.U.-U.S. deal and will come into force at about the same time, ensuring mutual recognition.
The text of the agreement can be downloaded here.