b'Insurance Regulatory | US/NAIC | States Begin Revising Credit for Reinsurance LawsDodd-Frank also established the legal frameworkfor collateral for qualified UK and EU reinsurers for the US to enter into bilateral or multilateraloperating in the US insurance market as a condition covered agreements with foreign jurisdictionsfor their US ceding insurers to take credit for reinsur-that address regulatory measures with respect toance. In addition, if US states implement appropriate the business of insurance or reinsurance. If stategroup capital standards, the Covered Agreements laws are inconsistent with a covered agreement andprovide that US insurance groups operating in the UK provide less favorable treatment to non-US insurersand EU will be supervised, at the worldwide group or reinsurers than US companies, then the coveredlevel, only by their relevant US insurance supervisors. agreement will preempt state law. A coveredConversely, UK and EU insurers operating in the US agreement can serve as a basis for preemption ofwill be supervised at the worldwide group level only state law only if the agreement relates to measuresby their relevant UK and EU insurance supervisors.substantially equivalent to the protections affordedBroadly speaking, the Covered Agreements: consumers under state law. Eliminate, as a requirement for reinsurance place-Adoption of the Covered Agreements ment or as a condition for receiving financial The US-EU covered agreement, signed onstatement credit for reinsurance, requirements for September 22, 2017, by the US Department of thereinsurers based in the other jurisdiction to have a Treasury (Treasury), the Office of the US Tradelocal presence or to post collateral; Representative (USTR) and the EU, requires US Provide that an insurance or reinsurance group states to eliminate reinsurance collateral require- will be subjected to worldwide group supervision ments for EU reinsurers that satisfy certainonly in its home jurisdictionnot in its host stipulated qualifications within five years, or elsejurisdictions where it operates; and the Dodd-Frank preemption provisions will come Establish regulatory best practices to be encour-into effect. In exchange, the EU will not imposeaged for cooperative exchanges of information local presence requirements on US insurers andamong regulators across jurisdictions.reinsurers operating in the EU and, in effect, must defer to US group capital regulation for US entitiesIn order to obtain the benefits of the Covered of EU-based insurers and reinsurers. Agreements, a non-US reinsurer must meet a number of requirements, including, among other On December 19, 2018, in anticipation of Brexit, thethings, maintaining a minimum capital and surplus Treasury, the USTR and the UK signed a UK-specificof at least $250 million, meeting certain minimum Covered Agreement. The motivation for the US-UKsolvency or capital ratios, adhering to prompt Covered Agreement was to ensure that the arrange- claims payment standards and furnishing certain ments embodied in the US-EU Covered Agreementfinancial information to the ceding insurers domi-would apply to the US-UK relationship after the UKciliary regulator upon request.ceased to be a member of the EU. The US-UK Covered Agreement effectively replicates the termsThe Process of Amending State Laws of the US-EU Covered Agreement.to Conform to the Covered The Covered Agreements eliminate local presenceAgreements and collateral requirements for qualified US reinsurersThe NAIC quickly recognized that it would need to operating in the UK and EU insurance markets. Theamend the NAIC Models to dovetail with the Covered Agreements also eliminate the requirementCovered Agreements. Originally, those amendments MAYER BROWN 55'