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The regulatory landscape for insurance companies has undergone significant change in the past decade. Standards and policy measures under development internationally by the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS), once finalised and implemented, could have significant implications on the regulatory framework applied to international insurance groups. The prudential regulation of insurance and reinsurance companies across the European Union has changed dramatically under the Solvency II Directive, which came into effect on 1 January 2016 and affects both European and non-European insurance groups with operations in the European Union. As at the time of writing, it remains to be seen how the United Kingdom’s pending exit from the European Union (Brexit) will affect the UK insurance industry and regulatory environment. In the United States, the individual states have begun implementing various regulatory and legislative changes that will continue to fundamentally affect the operations of large international insurance groups, and at the US federal level, the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (the Dodd-Frank Act) has introduced a new era of federal regulation of certain areas of insurance in the United States, although the future of many aspects of the Dodd-Frank Act remains uncertain. In addition, the International Accounting Standards Board in 2017 and the Financial Accounting Standards Board in 2018 issued important new accounting standards and guidance for insurance companies that will have a significant impact on accounting and financial reporting for insurance companies that use generally accepted accounting principles (GAAP) and International Financial Reporting Standards, although the changes will not become effective until 2021 or 2022. As the legal environment is likely to continue to be in a state of flux for several years to come, it will be critical for practitioners who provide corporate and transactional advice to stay abreast of the latest developments with respect to the United States,the European Union and international insurance regulatory schemes.

International insurance regulatory developments – FSB and IAIS

Following the 2008 financial crisis, a broad consensus emerged among national financial authorities and international financial bodies to strengthen coordination among financial authorities, pursue greater uniformity in financial regulations, and develop and implement enhanced regulatory and supervisory policies in the interest of financial stability and prevention of future financial crises, with an emphasis on enhanced group-wide and cross-border regulation. The FSB has issued a series of frameworks and recommendations intended to produce significant changes in how financial companies, particularly global systemically important financial institutions, should be regulated. These frameworks and recommendations address issues such as systemic financial risk, financial group supervision, capital and solvency standards, corporate governance, effective resolution regimes and a number of related issues associated with responses to the 2008 financial crisis. The FSB consists of representatives of national financial authorities of the G20 nations, various international standard-setting bodies (including the IAIS), as well as the International Monetary Fund (IMF) and the World Bank. FSB member nations agree to undergo periodic peer reviews assessing the soundness and stability of members’ financial systems and their implementation of proposed financial regulatory reforms, which are generally conducted by means of the Financial Sector Assessment Program reports prepared by the IMF or World Bank.

The IAIS is a voluntary membership organisation of insurance supervisors and regulators from more than 200 jurisdictions in nearly 140 countries. As the international standard-setting body for the insurance sector, the IAIS develops and assists in the implementation of principles, standards and other supporting material for the supervision of the insurance sector. Although the policy measures and financial reforms promulgated by the IAIS and the FSB have no legal force unless enacted at the national level, the relevant national financial authorities of members’ jurisdictions are expected to implement and enact the policy measures and financial reforms agreed by the FSB and IAIS. At the present time, however, the manner and timing of implementing the IAIS’s insurance regulatory reforms in the United States and other jurisdictions remain uncertain, as does the extent to which the IAIS’s capital and other regulatory standards and rules will complement, supplement or otherwise conflict with those developed pursuant to regulatory regimes and reform initiatives in the United States and the European Union.

The IAIS three tiers of supervision

The IAIS has developed three tiers of supervisory requirements and actions applicable to the insurance industry:

  • insurance core principles (ICPs): initially published in 2011 and periodically revised since then, the ICPs apply to the supervision of all insurers and insurance groups, regardless of size or systemic importance;
  • the common framework (ComFrame): the latest full draft of ComFrame was issued in July 2018 and applies to the cross-border supervision of ‘internationally active insurance groups’ (IAIGs); and
  • policy measures for ‘global systemically important insurers’ (G-SIIs): published in July 2013, these policy measures only apply to insurance groups designated as G-SIIs.

ICPs

ICPs are structured to allow a wide range of regulatory approaches and supervisory processes to suit different markets, and cover a broad range of topics, encompassing, among many other topics, supervisor responsibilities, confidentiality, licensing, change in control, risk management, enforcement, resolution and capital adequacy. The IAIS updated several ICPs in 2018 and has integrated ComFrame material into the ICP framework. The revised ICPs, along with the integrated ComFrame material, are scheduled to be adopted by the IAIS in November 2019.

ComFrame

At the direction of the FSB, the IAIS is developing ComFrame as a model framework for the supervision of IAIGs that contemplates ‘group-wide supervision’ across national boundaries. ComFrame expands upon the high-level standards and guidance set forth in the ICPs. The IAIS is seeking to promote the financial stability of IAIGs by endorsing:

  • uniform standards for insurer corporate governance and enterprise risk management;
  • a framework for group capital adequacy assessment that accounts for group-wide risks;
  • additional regulatory and disclosure requirements for insurance groups;
  • requirements to conduct group-wide risk and solvency assessments; and
  • the establishment of ongoing supervisory colleges (a supervisory college is a convention comprising the principal insurance regulators of a specific insurance group that meet periodically to facilitate cooperation and exchange of information on a group-wide basis among regulators, as a complement to the supervision of individual entities within a group).

ComFrame is scheduled to be finalised and adopted by the IAIS in November 2019, and will be subject to revision through prior field testing and confidential reporting. ComFrame is concerned primarily with the ongoing supervision of IAIGs, and is not focused on whether an insurance group is systemically important or how to reduce the systemic risk of insurers (which is the focus of the G-SII Policy Measures and related assessment methodologies). An IAIG is defined as a large, internationally active group that includes at least one sizeable insurance entity. The IAIS does not intend to develop a definitive list of IAIGs, but has proposed quantitative criteria for national supervisors to assess on a regular basis whether they should apply ComFrame to an insurance group. The IAIS expects approximately 50 firms from around the world to be identified as IAIGs by national supervisors under the current proposed criteria.

In connection with ComFrame, the IAIS is in the process of developing a risk-based global insurance capital standard (ICS) applicable to all IAIGs. Following expected completion of field testing in 2019, the IAIS will put forward ICS version 2.0 for implementation in 2020, consisting of two phases: (i) a five-year monitoring phase whereby the ICS will be used for confidential reporting to group-wide supervisors; and (ii) an implementation phase whereby the ICS will be applied as a group-wide prescribed capital requirement. The ICS, as with Solvency II, has used a ‘consolidated’ method (measuring the group based on consolidated financial accounting tools at the group level) for group capital determinations as opposed to an ‘aggregation’ method (tallying up the regulatory capital at the multiple entities and then aggregating the total, subject to certain eliminations or adjustments). Confidential reporting of ICS version 2.0 will include reporting by IAIGs of a standard formula based on market-adjusted valuation and the option, at the discretion of the group-wide supervisor, of additional ICS reporting based on GAAP with adjustments, or an internal model-based calculation, or both. In recognition of plans by relevant US regulatory bodies to develop an ‘aggregation method’ for group capital, the IAIS has agreed to aid in the development of, and collect data from jurisdictions that apply, such an aggregation method. Although the aggregation method will not be part of ICS version 2.0, the IAIS aims to be in a position at the end of the monitoring phase to determine whether the aggregated approach provides substantially the same outcome as the ICS, in which case it could be incorporated into the ICS as an outcome-equivalent approach.

G-SIIs

G-SIIs are defined by the FSB and the IAIS as insurers whose distress or disorderly failure, because of their size, complexity and interconnectedness, would cause significant disruption to the global financial system and economic activity. G-SII designations are based on an assessment methodology developed by the IAIS, which is subject to review and revision every three years. Although the initial response to the 2008 financial crisis was to focus on entity-specific designations of potentially systemic firms, there has been a trend among regulators and academics in the past several years to instead focus on identifying activities and products that may pose systemic risk to financial stability, as opposed to addressing risks only at particular financial companies. Consistent with this trend, in February 2017, the IAIS announced the adoption of a three-year systemic risk assessment and policy work plan expected to be finalised by the end of 2019, which will focus on developing a macro-prudential activities-based approach (ABA) to regulating systemic risk.

In July 2013, the FSB published its initial list of nine G-SIIs. The G-SII list is intended to be updated annually following consultation with the IAIS and national supervisory authorities, and the FSB published such a list in November 2014, 2015 and 2016. However, the FSB announced in November 2017 that, in consultation with the IAIS and national authorities, it had decided not to publish a new list of G-SIIs for 2017 in light of the IAIS’s development of the ABA and its implications for the assessment of systemic risk in insurance. In a public consultation issued in November 2018 on a proposed holistic framework for the assessment and mitigation of potential systemic risk in the insurance sector, including implementation of an ABA, the IAIS noted that, in its view, the implementation of the holistic framework would obviate the need for the FSB’s annual G-SII identification process. The FSB subsequently announced that, in light of IAIS progress in developing its proposed holistic framework, it has decided not to engage in an identification of G-SIIs in 2018, and that it will assess the IAIS’s recommendation to suspend G-SII identification from 2020, once the holistic framework is finalised in November 2019. In November 2022, based on the initial years of implementation of the holistic framework, the FSB will review the need to either discontinue or re-establish an annual identification of G-SIIs. In light of these changes and the potential elimination of G-SII designations going forward, it remains unclear whether or in what manner (including through potential integration into ComFrame) the G-SII policy measures summarised below will be implemented, if at all, by national authorities.

The G-SII policy measures promulgated by the IAIS in 2013 and endorsed by the FSB include:

  • enhanced group-wide supervision, with group-wide supervisors to have direct powers over holding companies and the power to impose restrictions and prohibitions on certain activities;
  • enhanced capital standards, including basic capital requirements (BCR) and higher loss absorption capacity requirements (HLA), which apply to all group activities, including those of non-insurance subsidiaries; the BCR is intended to serve as the initial foundation for the application of HLA requirements, although the IAIS envisages that the ICS will eventually replace the BCR as the foundation for HLA requirements;
  • systemic risk management plans: group-wide supervisors are to oversee the development by G-SIIs of plans for managing, mitigating and possibly reducing systemic risk;
  • enhanced liquidity planning and management: group-wide supervisors are to require a regular gap analysis of liquidity risks and adequacy of available liquidity resources under normal and stressed conditions; and
  • effective resolution regimes: the FSB has developed a document entitled the ‘Key Attributes of Effective Resolution for Financial Institutions’ (the Key Attributes), which sets forth the key features of resolution regimes that should be applied across jurisdictions to systemically significant financial institutions; the IAIS has developed an annex to this document that outlines the key attributes that are intended to apply to the resolution of G-SIIs.

Under the insurance-sector specific elements of the Key Attributes, G-SIIs will be expected to develop and prepare recovery and resolution plans to be submitted to their group-wide supervisors on an annual basis. In addition, ‘crisis management groups’ are expected to be established, which will include the relevant supervisory authorities, central banks, resolution authorities, finance ministries and guarantee fund authorities of each G-SII, as a forum for relevant regulators to discuss enhancing preparedness for the potential failure of the G-SII. Moreover, resolvability assessments are to be conducted by the home authority and crisis management group of each G-SII to assess the feasibility of the G-SII’s resolution strategies. Finally, institution-specific cross-border cooperation agreements are to be developed and entered into among the G-SII’s relevant resolution authorities.

Solvency II

Solvency II is a European Union directive (enacted in 2009) that is intended to codify and harmonise EU insurance regulation. Solvency II became effective, and its full implementation began, in January 2016. Solvency II is based on three pillars of enhanced regulation:

  • pillar 1 addresses quantitative measures to ensure insurance firms are adequately capitalised with risk-based capital, including requirements relating to technical provisions (ie, reserves), and solvency capital and minimum capital requirements;
  • pillar 2 addresses qualitative measures, governance, risk management and supervisory interaction, including a requirement that firms conduct an own risk and solvency assessment (ORSA); and
  • pillar 3 covers enhanced supervisory reporting and public disclosure requirements.

Solvency II also contains provisions designed to strengthen the supervision of insurance groups, including establishment of colleges of supervisors, and the imposition of group-based capital requirements in addition to capital requirements for individual insurers. As group supervision may include groups headquartered in non-EU jurisdictions, or include subsidiaries of an EU-based group located in non-EU jurisdictions, Solvency II permits group solvency and capital calculations to take account of local capital standards and requirements in relevant non-EU countries where members of the group are domiciled, provided the supervisory regime of the non-EU jurisdiction involved has been assessed as ‘equivalent’ by the European Commission, or (absent an equivalence assessment by the European Commission) the relevant EU group supervisor has undertaken its own equivalence assessment or applied ‘other methods’ to ensure appropriate supervision. In the absence of equivalence, the relevant non-EU insurer will be consolidated with the group’s EU operations for purposes of applying the Solvency II minimum capital and solvency requirements. Solvency II also permits equivalence decisions regarding the regulation of reinsurance, namely requirements applicable to non-EU reinsurers reinsuring risks in the European Union. Although to date the US supervisory regime has not been assessed as fully equivalent, the European Commission’s third-country equivalence decisions, adopted in June 2015, granted the US insurance regulatory regime, as well as the regimes in certain other countries, provisional equivalence for 10 years with respect to the ‘solvency calculation’ area of Solvency II (but not the ‘group supervision’ or ‘reinsurance’ areas). This provisional equivalence allows EU insurers with subsidiaries in the United States to use local rules, rather than Solvency II rules, to carry out their EU prudential reporting for these subsidiaries. The insurance regulatory regimes of Switzerland and Bermuda have been granted full equivalence in all three equivalence areas. As discussed below, a ‘covered agreement’ entered into between the United States and the European Union is intended to functionally result in equivalent treatment for the US insurance regulatory regime for both reinsurance and group-supervision purposes once the agreement is fully implemented.

Solvency II has resulted in more stringent capital and reporting requirements for EU-based insurers, generating concern and criticism from the industry regarding the impact Solvency II is having on insurers’ business models, capital and investments. The European Commission’s vice president announced plans in March 2018 to amend the Solvency II capital regime to minimise reporting requirements for insurers and review the impact Solvency II may have on insurers’ long-term business. In March 2019, the European Commission amended certain elements of Solvency II to allow insurers to hold smaller reserves of capital before they invest in equity and private debt.

Brexit and other EU regulatory developments

In a referendum held by the United Kingdom in June 2016, 51.9 per cent of those voting supported leaving the European Union. In March 2017, the United Kingdom invoked article 50 of the Treaty on European Union, starting a two-year process that was due to conclude with the United Kingdom’s exit on 29 March 2019. The United Kingdom and the European Union subsequently agreed to the terms of a withdrawal agreement pursuant to which EU law would continue to apply in the United Kingdom until the end of 2020. As at the time of writing, Parliament has failed to approve the withdrawal agreement, and the European Union and the United Kingdom have agreed to an extension of the article 50 period to 31 October 2019 unless (i) another extension is agreed, (ii) the article 50 notice is revoked or (iii) the withdrawal agreement is approved by Parliament. If none of these occur by 31 October 2019, the United Kingdom will exit the European Union without any withdrawal agreement (a ‘no-deal Brexit’). It remains to be seen whether, when and on what terms the United Kingdom will exit the European Union, and whether the United Kingdom will continue to implement Solvency II in the same manner as it currently does following an exit from the European Union. Depending on the outcome of the Brexit process, the United Kingdom may need to seek an equivalence decision from the European Union. As discussed below, the United Kingdom has already entered into a covered agreement with the United States to address these contingencies. Generally, under the current EU passporting regulatory regime, UK financial institutions can be authorised to provide financial services to customers across the European Union. However, if the United Kingdom leaves the European Union without reaching a withdrawal agreement, this privilege will no longer be available. As a consequence, many insurance and other financial institutions doing business in the United Kingdom have already begun to establish EU subsidiaries outside the United Kingdom and transfer business to other jurisdictions in the European Union to prepare for potential restrictions that may apply following Brexit.

In addition to Solvency II, other recent regulatory developments in the European Union and the United Kingdom will significantly impact insurers, including, among other things:

  • the General Data Protection Regulation (GDPR) entered into force in May 2016 and the new requirements under the GDPR became enforceable on 25 May 2018; the GDPR aims to harmonise data protection laws across the European Economic Area, including increased thresholds for obtaining valid consent to process personal data, enhanced accountability principles respecting data protection, and information security and breach notification requirements;
  • the Insurance Distribution Directive (IDD) was adopted by the European Council in December 2015 and came into force in February 2016; the IDD replaces the European Union’s Insurance Mediation Directive and introduces refreshed minimum regulatory standards for insurance sales in the European Union; and
  • in the United Kingdom, the Senior Managers and Certification Regime (SMCR), first introduced for banks in 2016, was extended to include insurers starting in December 2018. The SMCR is intended to strengthen the Prudential Regulation Authority’s regulatory regime for insurers to ensure there is an effective governance system and individual accountability of senior managers and directors of insurers.

Significant developments at the US state level

Historically, the insurance industry in the United States has been regulated almost exclusively by the individual states. Every state has a comprehensive body of statutes, regulations, accounting principles and actuarial guidelines that govern virtually every aspect of an insurance company’s operations, including licensing, capital and reserve adequacy, permitted investments, transactions with affiliated companies and reinsurance. At its core, the insurance regulatory framework in the United States is designed to protect insurers and their policyholders from risk in other parts of the insurer’s holding company group by subjecting individual insurers to stand-alone capital requirements based on statutory accounting principles, and imposing significant capital and asset mobility constraints and other regulatory protections. These laws are generally aimed at insulating state-regulated insurers from contagion by affiliates, whether they are domiciled in the United States or in foreign jurisdictions. The National Association of Insurance Commissioners (NAIC) is the US standard-setting and regulatory support organisation created and governed by the chief insurance regulators from US states and territories. Through the NAIC, state insurance regulators establish standards, best practices, and model laws and regulations; conduct peer review; and coordinate regulatory oversight, although the NAIC itself is not a regulator and its model laws and regulations have no force except to the extent enacted at the state level.

Beginning in 2008, US insurance regulators, through the NAIC, began reviewing lessons learned from the financial crisis and, specifically, studied the case of the American International Group (AIG) and the potential risks associated with non-insurance operations on insurance companies in the same group. At the heart of the lessons learned from the 2008 financial crisis was the need for insurance regulators to be able to assess the enterprise risk within a holding company system, both nationally and internationally, and its potential impact on insurers within that group.

US states have made significant progress in the past few years in adopting the latest revisions to the NAIC model insurance holding company act, which provides state insurance regulators with new group-wide supervisory tools, including a new enterprise risk report that insurance holding companies are required to submit at least annually. The enterprise risk report, to be filed with the lead state commissioner of the holding company system, must identify the material risks within the holding company system that could pose enterprise risk. Another new group solvency initiative being implemented at the individual US state level is the ORSA, which requires large and medium-sized US insurance groups to conduct at least annually an internal assessment of the material and relevant risks associated with the insurer’s or insurance group’s current business plan, and the sufficiency of capital resources to support those risks. In addition, many states have adopted legislation authorising the establishment of supervisory colleges.

The NAIC is also in the process of developing a group capital calculation for US insurance groups. The approach it has recommended and plans to develop would be an aggregation methodology that utilises existing state-based capital calculations (ie, risk-based capital) for US-domiciled insurance companies; the standards to be used for calculating capital for entities without existing capital requirements remain a topic of debate. In any event, the group capital calculation is intended to serve as an analytical tool for evaluating a firm’s capital position as the group level and is not intended as a group capital requirement.

In December 2012, the NAIC approved a new valuation manual containing a principle-based approach to life insurance company reserves. Principle-based reserving (PBR) is designed to tailor the reserving process to specific products in an effort to create a principle-based modelling approach to reserving rather than the factor-based approach historically employed. PBR became effective on 1 January 2017 with a three-year phase-in period. The adoption of PBR, along with other changes to actuarial guidelines and credit for reinsurance regulations adopted by the NAIC, are intended to eventually eliminate, or at least diminish, the need for insurers to employ captive reinsurance vehicles and other reserve financing structures. The NAIC is also in the process of developing a statutory framework that is intended to improve the current reserve and capital framework for variable annuity products, and address the root causes that have resulted in the use of captive reinsurance arrangements for variable annuities. Proposed changes to the variable annuity reserve and capital framework are expected to become effective in January 2020 with a suggested three-year phase-in period.

Finally, the states and the NAIC have begun to address regulatory approaches relating to cybersecurity. In 2017, the New York Department of Financial Services adopted a new cybersecurity regulation for financial institutions, including banking and insurance entities, under its jurisdiction. The new regulation became effective in March 2017 and requires such entities to, among other things, establish and maintain a cybersecurity policy designed to protect consumers’ data. In addition, the NAIC adopted a cybersecurity model law in October 2017 that establishes standards for data security, although most states have yet to adopt the model law.

Significant developments at the US federal level

At the US federal level, the Dodd-Frank Act established the Federal Insurance Office (FIO) to monitor the insurance industry and identify gaps in regulation that could contribute to a systemic crisis, and granted the Board of Governors of the Federal Reserve System (the Federal Reserve) significant regulatory powers over systemically important insurers and other insurers that are affiliated with an insured depository institution. Until the enactment of the Dodd-Frank Act, the Federal Reserve and other federal banking agencies generally had regulatory authority over insurance groups only to the extent an insurance group owned a bank or a savings and loan company, with the parent company qualifying as a bank holding company (BHC) or savings and loan holding company (SLHC) (several insurance groups currently qualify as SLHCs, although there are currently no insurance-based BHCs). The Financial Stability Oversight Council (FSOC), established pursuant to the Dodd-Frank Act and composed of federal financial regulators, state regulators and an independent insurance expert appointed by the president, has the authority to designate an insurance group as a systemically important financial institution (SIFI) to be subject to enhanced prudential standards and supervision by the Federal Reserve. The FSOC designated two US insurers – AIG and Prudential Financial – as SIFIs in 2013, and designated a third insurer, MetLife, in 2014. A federal court order rescinded MetLife’s SIFI designation in March 2016, and FSOC has since voted to rescind the designations of Prudential Financial and AIG. Currently, no entity is designated as a SIFI. In March 2019, the FSOC proposed revisions to its guidance on the designation of SIFIs that would prioritise an activities-based approach to the assessment of systemic risk, under which entity-specific SIFI designations would not occur unless a potential risk or threat cannot be addressed through the activities-based approach.

In June 2016, the Federal Reserve issued proposed rules applicable to insurance-based SIFIs relating to enhanced prudential standards for risk management, corporate governance and liquidity risk management, and issued a conceptual proposal outlining two potential approaches to capital standards: a ‘building-block approach’, which would be applicable to insurance-based SLHCs and largely based on existing state and foreign capital rules (and would be somewhat similar to the NAIC’s proposed aggregation methodology for group capital), and a potentially more onerous ‘consolidated approach’, which would be applicable to insurance-based SIFIs. The Federal Reserve is expected to issue a revised capital standards proposal focused solely on the building-block approach in 2019. Depending on future FSOC designations, rule-making by the Federal Reserve and the extent to which the Dodd-Frank Act is modified, the regulatory landscape applicable to an insurance-based SIFI (if any) or SLHC may be significantly different from that applicable to other US insurers, and any transaction that involves such entities will need to be assessed in light of the federal supervisory framework applicable to them.

FIO and the covered agreement

Although the FIO has no general supervisory or regulatory authority over the business of insurance, it is authorised to coordinate and develop federal policy on prudential aspects of international insurance matters. In particular, the FIO has taken a primary role in representing the US government within the IAIS. In addition, the FIO is authorised under the Dodd-Frank Act to assist the Treasury in negotiating covered agreements with foreign governments and regulators. A covered agreement is a written bilateral or multilateral agreement regarding prudential measures with respect to the business of insurance or reinsurance that: (i) is entered into by the United States and one or more non-US governments; and (ii) relates to the recognition of insurance prudential measures that achieves a level of protection for insurance consumers that is substantially equivalent to the level of protection achieved under state insurance regulation. On 22 September 2017, the US Trade Representative and Treasury, on behalf of the United States, and the European Union signed a covered agreement (the Covered Agreement) intended to address group supervision and reinsurance regulation.

Subject to certain exceptions and qualifications, the agreement provides that US-based insurance groups will be supervised at the worldwide group level only by their relevant US insurance supervisors, and that these insurance groups will not have to satisfy EU group capital, reporting and governance requirements for the worldwide group. Likewise, EU-based insurance groups will be supervised at the worldwide group level only by their relevant EU insurance supervisors. The agreement also seeks to impose equal treatment of US- and EU-based reinsurers that meet certain financial strength and market conduct conditions. In the United States, once fully implemented, the agreement requires US states to lift reinsurance collateral requirements on qualifying EU-based reinsurers and provide them equal treatment with US reinsurers, or be subject to federal preemption if not accomplished within five years from signing of the agreement. In the European Union, the agreement requires national authorities in the European Union to lift local presence requirements applied to US-based reinsurers doing business in certain EU member states. The NAIC is in the process of revising its credit for reinsurance model law and regulations to reflect the terms of the Covered Agreement. The provisions of the agreement are subject to various implementation and application timetables in the United States and European Union. In December 2018, the United States and the United Kingdom signed a covered agreement, the terms of which are substantially similar to the Covered Agreement. The UK–US covered agreement was entered into to maintain regulatory certainty and market continuity as the United Kingdom prepares to leave the European Union.

  • Samuel R Woodall and Roderick M Gilman provided valuable assistance in the preparation of this Introduction.

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