AM Best warns of increased Brexit uncertainty for UK insurers
AM Best has warned that uncertainty as to the UK’s future trading relationship with the EU has increased following the vote in the House of Commons on Jan. 15, 2019, rejecting the deal terms agreed with the EU by Prime Minister Theresa May’s government.
Historically, Lloyd’s, the London market and other UK-based commercial insurers have underwritten European Economic Area (EEA) business on a cross-border basis. However, if the UK withdraws from the EU without a deal, or at the end of an agreed transition period, passporting rights are expected to cease and UK-domiciled insurers will no longer be able to issue insurance contracts in the EEA, AM Best explained.
In order to continue to provide insurance services to EEA customers post-Brexit, many affected companies have chosen to establish new EU subsidiaries. Others, particularly 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. AM Best expects rated insurance groups to have these subsidiaries or arrangements in place by March 29, 2019, ensuring that they are able to underwrite EEA business going forward, even in the absence of a trade deal between the UK and the EU.
It is possible that if there is no trade deal, UK insurers will not be able to service existing contracts in certain EEA countries by settling and paying claims, AM Best noted. It is the hope and expectation of the insurance industry that a political solution will be found to this problem; for example, by allowing the grandfathering of existing contracts, the agency added. In spite of this, affected insurers have been putting contingency plans in place and exploring their operational and legal abilities 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 AM Best have either completed or initiated a transfer of their EEA business from their UK insurer to an affiliated EEA insurer under Part VII of the Financial Services and Markets Act 2000. However, the Part VII transfer process is expensive and time consuming, with transfers subject to extensive regulatory scrutiny and court approval, AM Best noted. Consequently, a number of Part VII transfers will not be complete by the end of March 2019, the agency noted.
Get all the latest re/insurance industry news with our daily newsletter - sign up here.
More of today's news
US P/C insurers report jump in profits
Portalatin becomes vice chairman of Marsh & McLennan
Beazley names new CFO replacing Bride
Maiden sells auto group to Allianz, strikes reinsurance deal
Acrisure raises $500m for acquisitions
Blue Capital Reinsurance revises Q4 cat losses upwards
Download our survey inforgraphic: 'The Impact of Automation on Commercial Lines'
