The impact of the Reinsurance Directive on non-EEA reinsurers doing business in the EU will depend on how those reinsurers currently structure their European operations.
The current options for non-EEA reinsurers operating in Europe are:
- a reinsurance company subsidiary with authorisation from the home state regulator (where applicable);
- a branch operation in a particular EEA state;
- providing reinsurance to EEA companies but not actually carrying on business in any EEA state under each jurisdiction’s rules.
The authorised reinsurance company subsidiary
The EEA incorporated and authorised subsidiary or a non-EEA reinsurance group will be subject to the same rules as any other company authorised within that particular EEA state. In addition, the home state of that subsidiary must notify each host state in which that subsidiary seeks to trade that the parent company of the subsidiary is based outside the EEA.
The branch operation
The most significant impact is likely to be on those non-EEA reinsurers who have a branch in the UK or any other EEA state. For these businesses, there are likely to be significant benefits to establishing and obtaining authorisation for a reinsurance subsidiary in an EU state, in particular as it will be able to benefit from the passporting rights into other EEA states.
Non-EEA reinsurers who currently operate through a branch in the EU will not be able to take advantage of these passporting rights, putting them at a trading disadvantage unless mutual recognition treaties are in place. Since non-EEA reinsurers will not be able to provide services across Europe from a single branch, they will either need to set up branches in each state they wish to trade in or establish an authorised reinsurance subsidiary.
As a result, if non-EEA reinsurers are currently operating through a branch, we would expect that a number will look to establish a full EU subsidiary and take advantage of the passporting rights. There are, of course, timing implications as, for example, the process for obtaining authorisation of a reinsurance company in the UK can take up to six months, although the FSA is stating that straightforward applications will be dealt with in two to three months. In addition, such non-EEA reinsurers will also need to consider mechanisms for the transfer of their business out of the branch and into the newly authorised reinsurer. In the UK for example, this could be done using the process in Part VII of the Financial Services and Markets Act 2000.
We would recommend non-EEA reinsurers with a branch in the EU should be reviewing their European operations early in 2007; if they have not done so already.
Undertaking non-regulated activities
In the UK, for example, a number of non-EEA reinsurers provide reinsurance to UK companies but do not actually carry on regulated activities in the UK and therefore do not require authorisation. This position will remain the same following implementation of the Reinsurance Directive.
However, any non-EEA reinsurers undertaking business in other EEA states will need to review the changes to local law following specific implementation of the Reinsurance Directive in those states. This will of course be most relevant to those Member States which had not previously regulated reinsurance business. It is likely that operations which have previously been undertaken by non-EEA reinsurers without the need for authorisation will be restricted.
Another important point to note is that the Reinsurance Directive specifically prohibits Member States from offering more beneficial treatment to reinsurers headquartered outside the EU and carrying on business in its territory than those accorded to reinsurance undertakings having their head office in that Member State. Non-EEA reinsurers will therefore be required to comply with whatever regulations are implemented in the particular Member State in whose jurisdiction it operates. This publication is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to a particular matter.