With Brexit on the Horizon, the U.S. and UK Sign a Separate Covered ‎Agreement ‎

Insurance & Reinsurance Newsletter
January 2019

On December 18, 2018, the US Department of the Treasury and the Office of the US Trade Representative signed a Bilateral ‎Agreement between the US and the UK on Prudential Measures Regarding Insurance and Reinsurance (the US-UK Covered ‎Agreement). The impetus for the US-UK Covered Agreement is the UK’s exit from the European Union. 

In its press release, the U.S. Treasury noted that the Covered Agreement “is an important step in maintaining regulatory ‎certainty and market continuity as the United Kingdom prepares to leave the European Union (EU). The US-UK Covered ‎Agreement also is an important step in affirming the competitiveness of U.S. companies in domestic and foreign markets and ‎making regulations more efficient, effective, and appropriately tailored.”‎

Back on September 22, 2017, the US and the EU entered into its agreement on prudential measures regarding insurance and ‎reinsurance originally addressing the same three areas of insurance and reinsurance prudential measures that the US-UK ‎Covered Agreement covers: (1) group supervision; (2) reinsurance supervision, including collateral and local presence ‎requirements; and (3) exchange of information between supervisory authorities (the Bilateral Agreement). The Bilateral ‎Agreement with the EU contemplates eventual elimination of collateral requirements for qualifying EU reinsurers assuming ‎business from U.S. cedents and of local presence requirements for US insurance enterprises operating or assuming business ‎in the EU. Assuming the UK’s exit from the EU occurs in March of 2019, the UK would no longer be a part of the US-EU ‎Bilateral Agreement.‎

Elimination of Local Presence and Collateral Requirements

Specifically, and subject to certain conditions described below, the US-UK Covered Agreement similarly eliminates the ‎requirement of a reinsurer’s local presence and maintaining collateral as a condition for a ceding insurer to take regulatory ‎credit for reinsurance. It does not prohibit requiring such conditions if the same requirements apply to reinsurance ‎agreements between insurers headquartered or domiciled in the same territory. 

To qualify for the elimination of local presence and collateral requirements, the reinsurer is required to maintain, on an ‎on-going basis: ‎

  • at least 226 million Euro, where the ceding insurer has its head office in the UK, or 250 million U.S. dollars, where the ceding ‎insurer is domiciled in the US, of own funds or capital and surplus;‎
  • a solvency ratio of 100 percent SCR under Solvency II or an RBC of 300 percent Authorized Control Level, as applicable;‎
  • consent to the jurisdiction of the courts of the territory in which the ceding insurer has its head office or is domiciled, in ‎accordance with applicable requirements of that territory for providing such consent; ‎where applicable for “service of process” purposes, consent to the appointment of that supervisory autho
  • rity as agent for ‎service of process; ‎
  • consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer, that have been ‎declared enforceable in the territory where the judgment was obtained; ‎
  • agree in each reinsurance agreement subject to US-UK Covered Agreement that it will provide collateral for 100 percent of ‎the assuming reinsurer’s liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming ‎reinsurer resists enforcement of a final judgment that is enforceable under the law of the territory in which it was ‎obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its resolution estate, ‎if applicable; ‎
  • maintain a practice of prompt payment of claims under reinsurance agreements; ‎
  • confirm that it is not presently participating in any solvent scheme of arrangement and agrees to notify the ceding insurer ‎and its supervisory authority and to provide 100 percent collateral to the ceding insurer consistent with the terms of the ‎scheme should the assuming reinsurer enter into such an arrangement; and
  • if subject to a legal process of resolution, receivership, or winding-up proceedings as applicable, the ceding insurer, or its ‎representative, may seek and, if determined appropriate by the court in which the resolution, receivership, or ‎winding-up proceedings is pending, may obtain an order requiring that the assuming reinsurer post collateral for all ‎outstanding ceded liabilities.‎

The collateral elimination requirements of the US-UK Covered Agreement do not call for full implementation until the ‎conclusion of a transition period sixty months from September 22, 2017, the same time frame as the Bilateral Agreement with ‎the EU. In its press release, the US is encouraging each US state to promptly adopt relevant credit for reinsurance laws and ‎regulations consistent with the US-UK Covered Agreement and to phase-out the amount of collateral required by each US ‎state to allow full credit for reinsurance cessions to UK reinsurers. The NAIC is currently in the process of adopting revisions to ‎the Credit for Reinsurance Model Law and Regulation in response to the US-EU Bilateral Agreement.‎

The US-UK Covered Agreement is prospective in that the collateral elimination requirements do not apply to reinsurance ‎agreements that were entered into before the application of the US-UK Covered Agreement or to losses that were incurred or ‎to reserves that were posted before the US-UK Covered Agreement’s application. Notwithstanding this requirement, the ‎US-UK Covered Agreement does not prevent parties from negotiating and agreeing on requirements for collateral in excess ‎of those required by law. ‎

Group Supervision

The US-UK Covered Agreement also limits the worldwide application of UK prudential group insurance measures on US ‎insurers operating in the UK. It provides that US insurers and reinsurers can operate in the UK without the US parent being ‎subject to the group level governance, solvency and capital, and reporting requirements of Solvency II. The US policy ‎statement stressed that it does not require development of a group capital standard or group capital requirement in the US.‎

Information Sharing

The US-UK Covered Agreement also encourages US insurance supervisory authorities to cooperate in exchanging ‎information with UK insurance supervisory authorities consistent with the practices set forth in the Model Memorandum of ‎Understanding Provisions on Exchange of Information between Supervisory Authorities in order to enhance cooperation and ‎information sharing and at the same time respecting confidentiality protection.‎


The NAIC issued a statement that it is reviewing the US-UK Covered Agreement and that it was not surprised that it mirrored ‎the terms of the Bilateral Agreement with the EU. The NAIC did not object to its use to replicate consistent treatment for the ‎UK. ‎

Following the NAIC’s adoption of the revisions to the Credit for Reinsurance Model Law and Regulation, the revisions will ‎then need to be passed by the State legislators to implement the requirements of the Bilateral Agreement with the EU and ‎the US-UK Covered Agreement.‎