Definition:Covered agreement
🌐 Covered agreement is a bilateral or multilateral agreement between the United States and one or more foreign jurisdictions that addresses the recognition of prudential insurance and reinsurance measures, thereby reducing regulatory barriers for insurers and reinsurers operating across borders. Authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, these agreements are negotiated by the Federal Insurance Office and the U.S. Trade Representative and carry significant weight in harmonizing U.S. state-based regulation with international standards.
🔗 The most prominent example is the 2017 U.S.–EU Covered Agreement, later supplemented by a similar pact with the United Kingdom following Brexit. Under these accords, U.S.-based reinsurers operating in EU or UK markets are relieved of local collateral posting requirements—historically a costly burden—provided they maintain minimum financial strength ratings and meet certain capital thresholds. Reciprocally, non-U.S. reinsurers gain the ability to receive credit for reinsurance in U.S. markets without posting full collateral, as long as their home regulator is deemed to maintain equivalent oversight. State regulators implement the agreement's terms through adoption of the Credit for Reinsurance Model Law revisions promulgated by the NAIC.
🏛️ The practical significance of covered agreements extends well beyond paperwork. By eliminating or reducing collateral requirements, they free up capital that carriers and reinsurers can deploy for underwriting or investment, improving competitiveness and lowering costs that ultimately flow through to policyholders. They also create a framework for ongoing regulatory dialogue, reducing the risk that one jurisdiction's supervisory actions—such as group supervision demands—will conflict with another's. For the U.S. insurance market, which depends heavily on global reinsurance capacity, covered agreements represent one of the most consequential developments in cross-border regulatory cooperation in recent decades.
Related concepts