Brexit: keep calm and keep underwriting

Here it is: Brexit is real. United Kingdom now has 11 months to negotiate all deals, including the trade deals with the EU. The negotiations will start in March.

What does it translate for the insurance companies?

During this transition phase (due to last until 31 December 2020), nothing really changes. British insurers can continue underwriting contracts in the European Economic Area (EEA) as they used to. European companies can still underwrite contracts with the UK. This is possible thanks to passporting.

Passporting can be defined as :

Being a member of the EEA and being bound by EU legislation confers the right to “passport” certain services across the EEA, either on a cross-border basis or through branches, without the need for additional local authorizations

But passporting will come to an end after the 31st of December 2020, and agreements and access to the markets will have to be negotiated in trade deals.

Safety first

The referendum took place in 2016, thus insurance companies have had time to prepare. Some British insurers have chosen to open a European entity (often based either in Brussels (like Lloyd’s or QBE), Paris, Dublin or Luxembourg). These entities can ask for an accreditation to the country in which they are based, cancelling any post-Brexit issue.

On the other side of the Channel, the British Treasury has, as of 2018, introduced a Temporary Permissions Regime allowing EEA companies to be able to underwrite until 2023 even if no agreement is found by then. Of course, this goes with a transfer of the insurance portfolios in order to ensure the continuity of activities.

To be safe, some insurers have added ‘Brexit clauses’ in their international insurance contracts to avoid breach of contract, to provide a framework for the transition and transfer of activities or to avoid complications. In most cases, however, these contracts are not renewable, as all the players hope that the negotiations will be successfully ended by then.

Mind the gap

There are still some grey areas: litigated claims are problematic, indeed which jurisdiction will be considered? What impact will the Brexit have on the Pound sterling rate? This will most likely also have an impact on the number of registered claims, depending on the evolution of the Pound sterling rate.

What about international (re)insurance companies? what about Solvency II? Will EIOPA consider the British regulatory principles to be enough compared to SII?

In addition to the trade negotiations, there is still a lot to be clarified in 2020.


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