New legislation reduces no-deal Brexit risks: Fitch
Interim solutions and contingency planning with respect to insurance claims are reducing some significant risks a "no-deal" Brexit would present to the European insurance sector, Fitch Ratings says in a new report.
The UK parliament is due to vote on Theresa May's deal for leaving the EU tomorrow, December 11. Members of parliament are widely expected to reject the proposals during a vote in the House of Commons.
The Brexit process has a range of potential outcomes and no single scenario has a high probability, Fitch noted. A critical issue in a disorderly "no-deal" scenario would be the loss of EU "passporting" rights, which authorise UK financial institutions to transact with EU clients, the agency noted.
Recent proposals for EU27 counterparties to access UK trading venues, and national legislation in some EU27 states giving UK financial institutions temporary authorisation, reduce the risk that a full lapse of EU authorisation would leave issuers unable to perform on some insurance claims and derivative contracts, Fitch noted.
However, without greater clarity on the scope, conditions and timing of prospective measures, some uncertainty remains on how losing cross-border authorisation would affect financial institutions, the agency warned.
All Fitch-rated UK insurers are enacting contingency plans for ongoing claim payments after Brexit, for example by obtaining new business licences or transferring claims on legacy policies to an EU27-based subsidiary (Lloyd's of London is transferring all EEA business to Lloyd's Brussels by end-2020). Nevertheless, the European Insurance and Occupational Pensions Authority estimates that 9.1 million policyholders may face uncertainty and delays in receiving payments. Potential legislation by individual EU member states giving temporary authorisation to UK financial institutions is likely to clear much of any remaining residual risk, Fitch noted.
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