There are a number of huge implications for insurers and reinsurers of a vote by the UK to leave the EU, which we discuss in this note. We would be very happy to discuss these further with you, so please let one of us, or your usual Hogan Lovells contact, know if this would be of interest.
There is no certainty on what would happen following a vote by the UK to leave the EU.
The UK public will not be voting on a specific proposal on what the UK relationship with the EU would be following Brexit (would we be an EEA member? or like Switzerland? or have a customs union with the EU like Turkey? or some new arrangement that no other country has?). Instead, the UK public will just be asked whether we should "leave" or "remain".
There is a massive question over how long in practice, following a vote to exit, the new relationship of the UK with the EU would take to negotiate. Nobody knows. Solvency II dealing with just one industry took 15 years. It took the UK over 10 years to negotiate its way into the EU.
While the shape of things to come is uncertain, we flag below some major potential implications of Brexit for insurers.
The right of an insurer to passport (essentially to carry on business in all EEA states by having a licence in just one of them) between the UK and the remaining EEA states may be lost.
So a UK insurer may need additional licences to carry on business in the 30 other EEA states. Or its group may need to form a new insurer based in one of those EEA states.
Likewise an EU insurer may need an additional licence to carry on insurance business in the UK. Or its group may need to form a new UK insurer.
The current right of an insurer to be subject to prudential regulation (e.g. on solvency and governance) only in its home state could be lost.
So a UK insurer operating in the rest of the EEA could be subject to host state prudential requirements in each EEA state in which it operates. Similarly an EU insurer operating in the UK could be subject to host state (UK) prudential requirements, in addition to those which are applied in its EU home state.
The regulation of groups could lead to duplication of work if groups are required to account to regulators in both the UK and the EU.
If you are a UK reinsurer, EEA states may be able to restrict your ability to cover local risks, for example by denying local cedants credit for the reinsurance you provide to them unless you post collateral in their favour.
4. Change of control
If you are looking to acquire a stake in a UK insurer, it may be that the UK government will not be constrained by the limited grounds for refusing a change of control that currently apply under the EU Acquisitions Directive.
5. Insurance business transfers
If you are a UK insurer, an insurance business transfer that you undertake may not be binding on your EEA policyholders.
You may no longer be able to transfer business to a transferee situated elsewhere in the EEA.
Judgments obtained in the UK may no longer be enforceable in other EEA states.
7. Intellectual property
If you have registered a trade mark or other IP in the UK, that may no longer be protected in other EEA states.
It is unclear whether the UK would be considered sufficiently safe for data to be lawfully transferred to it under EU data protection legislation.
Leaving the EU could mean that UK companies cease to be able to benefit from tax advantages currently available as a result of the EU's fundamental freedoms, for example, those provided by the Parent-Subsidiary Directive, the Merger Directive and the Capital Duty Directive.
10. General legal uncertainty
In relation to UK law that is derived from EU law, how will UK judges interpret the UK law? In line with ECJ interpretation, even new ECJ interpretation post-Brexit?