Best’s News & Research Service - November 19, 2018 07:50 AM (EST)
Best’s Briefing: UK Insurers Prepare for Loss of Passporting Rights Post Brexit
- November 19, 2018 07:50 AM (EST)
Oldwick //BestWire// - A.M. Best is closely monitoring the responses of U.K. insurers to the planned withdrawal of the United Kingdom from the European Union, with a particular focus on those insurers that currently utilise the European Economic Area (EEA) passporting system to conduct cross-border business throughout the EEA. When the United Kingdom withdraws from the EU, and at the end of any transition period, passporting rights that currently exist between the United Kingdom and the EEA are expected to cease.
In a briefing, “UK Insurers Prepare for Loss of Passporting Rights Post Brexit,” A.M. Best states once passporting rights are lost, U.K.-domiciled insurers will no longer be able to issue insurance contracts in the EEA. It is also possible that, in the absence of a political solution, they will not be able to service existing EEA contracts by settling and paying claims. In the event of a “no-deal” Brexit, this could come into effect as early as 29 March 2019.
Catherine Thomas, senior director, analytics, said: “Many companies have chosen to establish new EU subsidiaries. Meanwhile, small insurers that do not have the resources to create additional companies have formed relationships with local carriers that will be able to front business for them. A.M. Best expects rated insurance groups affected by Brexit to have these subsidiaries or arrangements in place by March 2019, ensuring that they are able to underwrite EEA business going forward, even in the absence of a transition period.”
However, the report adds the creation of a licensed EU subsidiary or affiliate does not address the issue that a U.K. insurer may not be able to service existing EEA contracts following a loss of passporting rights. It is the hope and expectation of the insurance market that a political solution will be found to this problem; for example, by allowing grandfathering of existing contracts. In spite of this, affected insurers are putting contingency plans in place and exploring their operational and legal ability to settle claims and provide other services to policyholders in individual EEA jurisdictions.
The majority of insurance groups that are affected by Brexit and rated by A.M. Best have either completed or initiated a transfer of their EEA business from their U.K. insurer to an affiliated EEA insurer under Part VII of the Financial Services and Markets Act 2000.
Yvette Essen, director of research, said: “However, the Part VII transfer process is expensive and time consuming, with transfers subject to extensive regulatory scrutiny and court approval. The process is further complicated if business has been underwritten on a pan-European basis, as is often the case for large commercial clients, as it is difficult to separate assets and liabilities into U.K. and other EEA components. Consequently, a number of Part VII transfers will not be complete by the end of March 2019. In these cases, a transition period following the United Kingdom’s withdrawal from the EU is necessary to allow time for the transfer of policies to be completed.”
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=280238 .
A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.