Most insurers on track in Brexit preparations: AM Best
The majority of insurance groups that are affected by Brexit and rated by AM Best have either completed or initiated a transfer of their European Economic Area (EEA) business from their UK insurer to an affiliated EEA insurer under Part VII of the Financial Services and Markets Act 2000, according to the agency.
“Many companies have chosen to establish new EU subsidiaries,” said Catherine Thomas, senior director, analytics at AM Best. “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. AM 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.”
When the UK withdraws from the EU, and at the end of any transition period, passporting rights that currently exist between the UK and the EEA are expected to cease.
“The Part VII transfer process is expensive and time consuming, with transfers subject to extensive regulatory scrutiny and court approval,” said Yvette Essen, director of research at AM Best. “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 UK 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 UK’s withdrawal from the EU is necessary to allow time for the transfer of policies to be completed.”
Once passporting rights are lost, UK-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, AM Best said. In the event of a “no-deal” Brexit, this could come into effect as early as March 29, 2019.
AM Best warned that the creation of a licensed EU subsidiary or affiliate does not address the issue that a UK 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, the agency noted. 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, it added.
