EU states agreed on Tuesday to give the bloc's executive European Commission a mandate to negotiate a regulatory pact with the United States.

European reinsurers, such as Munich Re (>> Muenchener Rueckversicherungs-Ges. AG) and Hannover Re (>> Hannover Rueck SE) of Germany and syndicates on the market run by Lloyd's of London Ltd [SOLYD.UL], comply with EU solvency rules but must also meet additional collateral requirements when underwriting in the United States.

Reinsurers say this puts them at a disadvantage to American rivals by increasing capital costs and making premiums more expensive.

"An agreement with the U.S. will greatly facilitate trade in reinsurance and related activities", Janis Reirs, minister of finance for Latvia, which holds the EU's rotating presidency, said in a statement.

"It will enable us for instance to recognise each other's prudential rules and help supervisors exchange information."

European and other non-American reinsurers helped to pay for damage from the 1906 earthquake in San Francisco and met 64 percent of the claims from the Sept. 11 attacks in New York.

The European Union introduces new solvency rules for insurers next January and the European Commission must decide if U.S. and other foreign insurers should comply to continue operating in the 28-nation bloc.

This may give the EU executive some leverage in its negotiations with the U.S. government on collateral.

Brussels has been trying for years to persuade the United States to scrap its collateral requirements, but this has been difficult partly because the U.S. insurance sector is regulated by state-level supervisors.

Some U.S. supervisors have cut collateral requirements but a countrywide deal is needed.

The National Association of Insurance Commissioners (NAIC), which groups U.S. state-level supervisors, said most transatlantic insurance trade is already eligible for reduced collateral and it expects continued progress.

"We will scrutinize any negotiations because of the potential pre-emption of state law, mindful of what, if any, advantages might be proposed for U.S. consumers and businesses," NAIC said in a statement.

Jesus Cisneros, policy adviser for international affairs and reinsurance at Insurance Europe, an industry body, said a bilateral agreement should seek the total elimination of collateral requirements for non-American reinsurers.

"Such an agreement would set an important global precedent for how cross-border reinsurance transactions should be regulated," Cisneros said.

(Editing by Mark Potter and Lisa Shumaker)

By Huw Jones