In September 2017, the European Union and the United States executed a bilateral treaty called the US-EU Covered Agreement, which for the first time ever permitted US ceding insurers to receive 100% credit on their statutory financial statements for reinsurance purchased from EU reinsurers – without EU reinsurers having to post any collateral. Under the terms of the US-EU Covered Agreement and a copycat US-UK Covered Agreement after Brexit, US states had five years to amend their credit for reinsurance laws to recognize this new status, now known as reciprocal jurisdiction reinsurers. So, two years after the implementation deadline, what does the landscape look like?

Today, every US state has implemented a version of the National Association of Insurance Commissioners’ (NAIC) new Credit for Reinsurance Model Regulation, permitting the recognition of reciprocal jurisdiction reinsurers. In addition to the EU and the UK, reinsurers domiciled in reciprocal jurisdictions, which include Japan, Bermuda, and Switzerland, can also apply for approval as reciprocal jurisdiction reinsurers, provided they possess at least $250 million in capital and surplus. Reciprocal jurisdiction reinsurers must select a so-called “lead state” to apply for their initial approval. Once approved by a lead state, the reinsurer can apply (if desired) to the NAIC’s Reinsurance Financial Analysis (E) Working Group (ReFAWG) for a “passport” so they can be recognized as a reciprocal jurisdiction reinsurer in other US states.

More recently, the US Department of the Treasury finalized its “T-listing” rules to allow certified and reciprocal reinsurers to apply to be recognized. This new status is not available on a passport basis; it requires a separate application to the Treasury. The key advantage for non-US reinsurers to be listed by the Treasury is to provide credit for reinsurance for the US insurers/cedents currently listed by the Treasury. Financial analysts within the Treasury will not allow US insurers/cedents to take financial statement credit for liabilities ceded to non-US reinsurers unless the non-US reinsurer has applied for and received listing approval from the Treasury.

To date, more than 90 reinsurers received approval by ReFAWG as reciprocal jurisdiction reinsurers and have “passported” into at least one state. Does this mean reinsurance collateral has gone the way of the dodo? As some reinsurers begin the process of winding down their multi-beneficiary reinsurance trusts while others contemplate not renewing their certified (reduced collateral) status, some might say it has. However, collateral still has a role to play for non-US reinsurers in the US reinsurance market, such as newly formed reinsurers, those not domiciled in a reciprocal jurisdiction, or those with less than the minimum $250 million capital and surplus, and, importantly, for securing “old” reinsurance liabilities. And of course, US cedents can still require collateral as a commercial matter. There is no denying that the advent of reciprocal jurisdiction reinsurers has changed the landscape of the US reinsurance market.