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The Actuary The magazine of the Institute & Faculty of Actuaries

New EU/US reinsurance deal set to free up $40bn worth of collateral

The EU and US have agreed a bilateral deal to lift requirements for many reinsurers to hold capital against their business either side of the Atlantic after more than 20 years of discussions.

New deal is a 'win-win solution' ©Shutterstock
New deal is a 'win-win solution' ©Shutterstock

This will release an estimated $40bn (£33.2bn) of collateral posted in the US by European reinsurers, which can then be used for other investments.

In return, US reinsurers operating in Europe will also not have to hold collateral against the business they write, while there will be limits on the extent that regulators can oversee trade.

European Commission vice-president, Valdis Dombrovskis, said: “We welcome this agreement, which is both balanced and fair. This is a major deal that is set to benefit insurers, reinsurers and policyholders on both sides of the Atlantic.

“It is a win-win solution. It shows that both EU and US regulators can reach mutually beneficial outcomes through enhanced international cooperation.”

The new deal will mean that insurance and reinsurance groups active in both jurisdictions will not be subject to group supervision for their worldwide activities, although supervisors can request information about activity that could harm policyholders’ interests or financial stability.

US regulators will provide primary oversight for US insurance groups, while EU regulators will be primarily responsible for overseeing EU groups, although the agreement contains model provisions for the exchange of information between supervisors.

Insurance Europe head of prudential regulation and international affairs, Cristina Mihai, said: “We welcome the recent conclusion of the bilateral agreement on reinsurance between the EU and the US, and support the provisions foreseeing the removal of the discriminatory collateral requirements that EU reinsurers were subject to when placing business in the US.

“The agreement aims for the application of the same requirements to both EU and US reinsurers placing business in each other’s jurisdictions, which will help support bilateral trade in reinsurance, for the benefit of both consumers and economies.”

The new deal is still subject to approval from the US Congress and EU Parliament.