The UK and US today took a decisive step towards an agreement which will ensure their insurance and reinsurance sectors are able to continue to trade freely with one another once the UK has left the EU.
HM Treasury, US Department of the Treasury, and the Office of the US Trade Representative have agreed the text of an agreement that will preserve the benefits of the existing EU-US agreement for UK firms. The next step will be for both countries to formally sign it.
The new arrangement will provide continuity of the effects of the existing EU agreement with the US, and is part of the UK’s continued efforts to cement global ties as it prepares for a future outside of the EU. It will come into force when the current EU-US Covered Agreement ceases to apply to the UK.
The US is the primary foreign market for London-based insurers and reinsurers, which is why a new agreement is so important. For example, 41% of Lloyd’s of London’s global premiums are held by US customers.
The agreement provides several reciprocal benefits, including the elimination of state-based reinsurance collateral requirements, the removal of group capital, governance, and reporting requirements, as well as local presence and collateral requirements for reinsurers.
- Now the agreement has been presented to Congress, it will proceed through a 90 day lay-over period during which the agreement will be signed.
- Following signature, the UK will begin its domestic ratification process which involves laying the agreement before Parliament.
- The existing EU-US Covered Agreement, signed in September 2017, is a bilateral agreement reflecting mutual recognition of prudential standards. It covers three areas of insurance:
- Reinsurance collateral requirements and local presence – removal of the requirements imposed by some US states on non-US reinsurers to hold capital against risks and operate out of a local presence.
- Group supervision of insurers – this ensures that insurers of both parties will only be supervised at the group level by their home country supervisors.
- Exchange of insurance information between supervisors – this facilitates ongoing dialogue between UK and U.S. regulators.