UK (re)insurers will be able to sell cover in the US on equal terms to EU carriers after Brexit, under an agreement negotiated between the UK and US Treasury Secretary Steven Mnuchin.
The covered agreement, which gives EU (re)insurers a level playing field for doing business in the US and vice-versa, will be extended to the UK under the terms of the deal.
The agreement puts to an end concerns that UK insurers, including Lloyd’s businesses, would face disruption after 29 March 2019.
The pact contains mutual recognition of the regulatory frameworks in the UK and US. The arrangement removes extra collateral requirements for US reinsurers doing business in the UK. It also empowers regulators to swap information on carriers across national boundaries.
The preamble to the deal states that prudential regulations in the UK “achieve a level of protection for policyholders and other consumers with respect to reinsurance cessions and group supervision consistent with the requirements of the Federal Insurance Office Act of 2010”.
Once the UK deal takes full effect – as with the US/EU agreement - it will eliminate collateral and local presence requirements for US and UK carriers operating in each others' jurisdictions.
The US and EU spent years negotiating the covered agreement on (re)insurers before last year’s pact.
The deal extension for a post-Brexit UK is set to be signed by Mnuchin and US Trade Representative Robert Lighthizer.
Both politicians are authorised to agree bilateral insurance deals under the 2010 legislation and have written a joint letter to the Senate Finance Committee Chairman Ron Wyden, putting their weight behind the covered agreement extension.
International Underwriting Association (IUA) CEO Dave Matcham said: “We very much welcome the announcement that UK/US governments intend to enter into a new bilateral covered agreement on prudential measures for insurance and reinsurance."
"This development demonstrates the trusted relationship between the respective regulators. It will ensure necessary regulatory certainty and market continuity for London market firms and US companies as they look to service their clients’ needs after Brexit.”
Malcolm Newman, chairman of the London Market Group’s government affairs workstream and managing director of the Emea hub at Scor, said:
“The LMG welcomes the news of a new bilateral insurance agreement between the United States and the United Kingdom, which will provide much needed certainty and market continuity for UK firms operating in the US."
He added: "It is a vindication of London’s position as the world leader in providing specialty insurance and reinsurance, and offers a significant opportunity for the London Market to continue to grow over the coming years, a case that LMG member associations have been making to HM Treasury over the past year.”
Mazars partner Michael Tripp noted that US officials had set aside concerns about the mechanics of the covered agreement, which is "thus a clear indication of how both the UK and USA want to continue their special relationship in the insurance world", irrespective of Brexit.
He added: "Reinsurance and indeed captive Insurance trade with London is a vital part of the way the world economy manages risk. As such, it’s great to see that the USA regard this as important enough to reach agreement that will protect ability to deal with all sorts of insurance risk –in particular catastrophe insurance management. Equally, use of various captive domiciles in USA will continue."