UK insurers ‘well prepared’ for any Brexit outcome, says AM Best
As the UK parliament continues to wrangle over the best way forward for Brexit, rating agency AM Best said UK-domiciled insurers were “well prepared” for the outcome, “regardless of when or under what terms the UK leaves the EU”.
In a industry briefing, the agency said, when the UK finally withdraws from the EU, “passporting rights that currently exist between the UK and the EEA are expected to cease, and UK-domiciled insurers will no longer be able to issue insurance contracts in the EEA.
“It is also possible that if there is no trade deal encompassing financial services, UK insurers will not be able to service existing contracts in certain EEA countries…”
However, the briefing said that the impact will be “cushioned” by the UK government’s temporary permission regime, which will allow EEA insurers to operate in the UK for up to three years after Brexit, while they apply for approval from UK regulators.
Many insurance groups have set up EU subsidiaries to enable them to continue to underwrite EEA business.
However, the briefing said that fronting agreements or EU subsidiaries “do not address the issue that a UK insurer may not be able to service existing EEA contracts if passporting rights are lost”.
As a result, the majority of rated insurers in this position 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.
This transfer process, AM Best said, is “expensive and time consuming” and subject to “extensive” regulatory scrutiny.
“Consequently a number of Part VII transfers will not necessarily be completed before Brexit,” it warned.
“In view of this, affected companies have welcomed news from the UK’s HM Treasury and the European Insurance and Occupational Pensions Authority (EIOPA) that they will support the orderly run-off of insurance business if there is no EU withdrawal agreement.
European countries, including France and Germany, have also announced rules that will come into force in the event of a no-deal Brexit to ensure UK insurers will be able to continue to pay claims.
