EU/US: Breaking barriers in Transatlantic Reinsurance

Two of the key opportunities envisaged by the recent London Market Group's report into the future of the London Insurance Market, was to break down barriers to reinsurance and reduce the cost of doing business for the London Market. It will therefore be welcomed that last month, the Council of the European Union issued a mandate to the European Commission to negotiate an agreement with the United States on reinsurance. The mandate "consists of a decision authorising the opening of talks and directives for the negotiation of the agreement" which the Commission will negotiate and the Council will conclude with the consent of the European Parliament. The industry has welcomed the move, with commentators believing it could lead to the abolishment of collateral requirements for non-US reinsurers, in order for them to underwrite across the pond. These requirements, in addition to those already in place in Europe, can put European reinsurers at a disadvantage when operating in US markets due to increased capital costs and higher premiums than their American counterparts. Success in these negotiations could also lead to greater consumer choice. "An agreement with the US will greatly facilitate trade in reinsurance and related activities,” said Janis Reirs, minister for finance of Latvia and president of the Council. "It will enable us for instance to recognise each other’s prudential rules and help supervisors exchange information." However, whilst many EU commentators have welcomed these steps, it is notable that a large amount of transatlantic insurance trade may already be eligible for reduced collateral due to the fact that some US state supervisors have largely removed these requirements. Further, other commentators believe the difficult political environment that these negotiations will take place in could be problematic in reaching a deal. Yet a uniform approach is needed throughout the US in order to benefit UK and EU markets, and with the EU introduction of new Solvency II rules for insurers in January 2016 this may give the European Commission some leverage in its negotiations. As the LMG report shows, both the EU and the US's reinsurance markets are under threat from emerging reinsurance hubs. A streamlined regulatory regime between the two could be one way of ensuring the continued competitiveness of both markets in an ever-changing global environment.

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