Equivalence • Brexit consequence: Under Solvency II, UK can only file application for equivalence assessment after it has formally left the EU. • Possible solution: Seek equivalence assessment before exit, to become effective from the date of withdrawal (possibly only temporarily). Approach to UK regulation • Brexit consequence: UK's domestic regulatory regime is likely to meet minimum Solvency II standards required to maintain equivalence. • Possible solution: Seek amendment/ abolition of existing EU-generated laws that are unnecessarily burdensome and no "gold plating" of Solvency II requirements. BREXIT – "AT A GLANCE" KEY ISSUES FOR LOBBYING BY INSURERS – UK TO EEA EEA EEA policyholder EEA branch (passport into EEA) 3 2 • Brexit consequence: As there are no rules under Solvency II regarding access by third country insurers (including UK insurers) to EEA markets without establishing a permanent presence, individual states can decide how to treat such insurers. Without ability to service existing business, UK insurers will not be able to agree and pay policyholder claims, effectively leaving policyholders uninsured. • Possible solution: As a minimum, focus on preserving right for UK insurers to service existing business in EEA states without passport. Consider whether realistic to ask for continued access to EEA markets for new business, ie no real change from current position – unlikely to be available, but ideally it would be. • Brexit consequence: Solvency II requires authorisation of branches in each EEA state; passporting rights not available. Rules on localisation of branch assets and capital requirements likely to mean additional costs. • Possible solution: Seek to secure more favourable treatment for UK insurers than under Solvency II; Article 171 of the Solvency II Directive contemplates individual deals with third countries "under conditions of reciprocity". NB different rules apply to pure reinsurers. • Brexit consequence: Additional subsidiaries likely to mean additional cost; further issues include availability of staff and infrastructure in new jurisdiction; willingness of staff to move; language. • Possible solution: Seek to secure position that allows minimal disruption to business, eg ability of new EEA operations to outsource back to the UK to avoid transfer of full infrastructure from UK to new EEA "hub". • Brexit consequence: EEA policyholders of UK insurers may lose FSCS and FOS protection, eg if their policy is transferred to, or renewed into, an EEA subsidiary. • Possible solution: Ensure EEA policyholders of EEA subsidiaries have at least equivalent cover in their home state. Continued use of portfolio transfers and cross border mergers • Brexit consequence: UK firms may not have access to the same transactional and transfer tools as European competitors. • Possible solution: Seek to preserve EEA-wide recognition of insurance business transfers sanctioned by the UK court. Seek continued or transitional application of SE and Cross-Border Mergers Regulations to facilitate post-Brexit business restructuring. UK access to third countries on a transitional basis • Brexit consequence: UK may not participate, as of right, in existing trading agreements agreed between the EU and third countries. • Possible solution: Seek to preserve UK access to such agreements at least on a transitional basis, eg EUSwiss agreements. Key third countries of importance to the insurance industry where EU status gives access should be identified. UK FSCS/FOS (UK policyholder protection regime) 1 4 UK insurance company (UK incorporated and authorised) EEA subsidiary (separately authorised in EEA) UK INSURER ACCESSING EEA ON A SERVICES PASSPORT 1 UK INSURER ACCESSING EEA THROUGH NEW EEA SUBSIDIARY 3 UK INSURER ACCESSING EEA THROUGH PASSPORTED BRANCH(ES) 2 PRACTICAL AND NON-FINANCIAL SERVICES REGULATORY ISSUES OTHER REGULATORY ISSUES 4 FSCS/FOS PROTECTION BREXIT – "AT A GLANCE" KEY ISSUES FOR LOBBYING BY INSURERS – EEA TO UK Geoffrey Maddock Partner T +44 20 7466 2067 firstname.lastname@example.org Barnaby Hinnigan Partner T +44 20 7466 2816 email@example.com Alison Matthews Consultant T +44 20 7466 2765 firstname.lastname@example.org Gavin Williams Partner, Brexit project leader T +44 20 7466 2153 • Brexit consequence: It is for UK to email@example.com determine rules on access to UK market; current rules on UK branches of third country insurers (which will include EEA insurers post-Brexit) are consistent with Solvency II. UK could make it considerably harder for an EEA insurer to establish a UK branch (however this must be considered unlikely). • Possible solution: Seek to agree equally favourable terms for accessing UK markets as for UK insurers accessing EEA markets . Possible grandfathering/light touch to authorisation of existing branches. • Brexit consequence: Additional subsidiaries are likely to mean additional cost. UK subsidiary will be expected to have its head office in the UK, which may mean moving aspects of the business to the UK. UK subsidiaries within EEAheadquartered groups would need to be brought into account for group capital purposes on a Solvency II basis. • Possible solution: Seek rights for UK subsidiaries of EEA firms to outsource operations to the EEA. • Brexit consequence: Unless an incoming EEA insurer is UK authorised, UK policyholders of such EEA insurer may lose FSCS and/or FOS protection. • Possible solution:Seek ongoing FSCS/FOS cover for UK policyholders who take out cover with incoming EEA insurers or ensure that they will still have equivalent cover under insurer's home state scheme. Additional information on the implications of Brexit for businesses can be found on our Brexit hub, including a recent update of our general client legal guide "The UK vote to leave the EU". Other information includes: • Brexit - "at a glance" implications for insurers • "Access to the single market" – an explanation for the (re)insurance sector • Brexit: impact on EEA insurers and non-EEA headquartered groups UK policyholder FSCS/FOS (UK policyholder protection regime) 1 2 3 UK subsidiary (separately authorised in UK) UK branch (passport into UK) EEA insurance company (EEA incorporated and authorised) If you would like to speak to us about any of the legal and regulatory issues raised by Brexit, please contact a member of our team CONTACTS 4 EEA UK • Brexit consequence: Whether or not an EEA insurer requires UK authorisation depends on whether it is effecting or carrying out contracts of insurance by way of business "in the UK". If not, it may operate in the UK on a "non-admitted basis" - unless the UK decides to change the current position under FSMA. • Possible solution: EEA insurers should establish whether they require authorisation in the UK to continue activities. If they do, and, as with UK insurers which require continued access to EEA, seek transitional relief to allow EEA insurers which would otherwise require authorisation under FSMA to service existing business at the date of exit, and, if possible, on an ongoing basis. EEA INSURER ACCESSING UK ON A SERVICES PASSPORT 1 EEA AUTHORISED INSURER ACCESSING UK THROUGH NEW UK SUBSIDIARY 3 EEA INSURER ACCESSING UK THROUGH PASSPORTED BRANCH 2 4 FSCS/FOS PROTECTION ADDITIONAL BREXIT MATERIAL
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Brexit - "at a glance" - key issues for lobbying by insurers - UK to EEA
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