On 22 February 2019, the Irish Government published the draft text of the "Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019 (the "Bill"). This followed the earlier publication, on 24 January 2019, of the general scheme of the (then-entitled) 'Miscellaneous Provisions (Withdrawal of the United Kingdom from the European Union on 29 March 2019) Bill 2019' (the "Scheme").
The Bill proposes the primary legislative measures that the Government believes are required in the event of a 'no-deal Brexit'. The focus of the Bill is to protect the citizens of Ireland, and to support the economy, enterprise and jobs – particularly in those key economic sectors that would be most affected by a no-deal outcome.
The Government has been called upon by the European Commission to implement many of the measures that are contained in the Bill, as have all other EU countries, in its 'Contingency Action Plan'. The proposed legislation is intended to be consistent with and complementary to steps currently underway at EU level. Therefore, Ireland will not be in a position to adopt more liberal measures than are generally available to the other EU 27 Member States.
Implications for insurance sector
Part 8 of the Bill deals with proposed amendments to existing Irish law regarding the conduct of insurance business (in the case of insurance companies). There are also proposed amendments to the Insurance Distribution Directive regime (in the case of insurance intermediaries). The amendments accord with European Commission advice that Member States may put in place appropriate national measures regarding insurance contract continuity following engagement with the European Insurance and Occupational Pensions Authority (EIOPA).
A temporary run-off regime has been proposed to deal with the servicing of existing insurance contracts with Irish policyholders by UK and Gibraltar based entities. In effect, the same approach is adopted for both insurance companies and
intermediaries. Where the entity in question:
- is authorised in the UK or Gibraltar (registered in the case of intermediaries);
- has exercised its right to carry on insurance business (or, as the case may be, insurance distribution business) in Ireland on a freedom of establishment or freedom of services basis, and has commenced such business in Ireland;
- has ceased to write new business in Ireland;
- is exclusively administering its Irish book of business in order to terminate its activity in Ireland; and
- complies with the general good requirements,
then that entity may continue to carry on its run-off activities in Ireland for a maximum three year period following the date on which Part 8 comes into operation (which, one may assume, will coincide with the date upon which the United Kingdom leaves the European Union, whether on 29 March 2019 or otherwise). All of the Irish business of the entity must be in run-off and the entity cannot rely on this regime while it seeks authorisation (e.g. by establishing a third-country branch in Ireland) to continue writing Irish business from the UK/Gibraltar. Furthermore, if the Central Bank of Ireland (the "CBI") decides at any point that an entity no longer meets any of the conditions set out above, or if it decides that the entity has failed to make sufficient progress towards permanently ceasing to carry on business in Ireland, the CBI may issue a "withdrawal notification" to the entity which will effectively mean the entity would no longer benefit from the temporary run-off regime (although the decision to issue a withdrawal notification is appealable under the Central Bank Act 1942).
The Bill obliges entities to notify the CBI within 3 months that they are availing of the temporary run-off regime.
What is not dealt with?
With regard to timing, it is significant that the provisions in the Bill concerning run-off are only of benefit for a maximum three year period, and that any entity availing of the temporary run-off regime is expected to be making arrangements to permanently cease its insurance business in Ireland within that maximum period. Accordingly, if business takes longer than three years to run off, then any activity conducted outside this period will not benefit from the special regime being proposed. This may put UK/Gibraltar insurers under some pressure to settle claims more quickly than might be in their interest to do so commercially. Also, a liability claim in respect of a policy that was issued prior to the UK's date of exit from the EU may not materialise for a number of years and it may be that UK/Gibraltar insurers will not be in a position to meet the claim at that point, if to do so would be regarded as a breach of applicable Irish laws. We expect that the run-off period will be of limited benefit to entities offering life policies, as such policies by nature will run for longer than three years. Ultimately, the provisions as drafted are designed only to provide contract certainty for existing business in the immediate aftermath of Brexit, and to facilitate a reasonable timeline for implementing permanent solutions for longer-term / long-tailed business (e.g. establishment of a third country branch in Ireland, to be authorised by the CBI) or a portfolio transfer to an EEA authorised carrier. Continuing to administer existing portfolios on a "business-as-usual" basis can be expected to lead quickly to issues with the CBI.
As concerns the servicing of Irish business, the approach in the Bill is similar to the UK's intended "financial services contracts regime" but with a shorter three year carve-out and only for run-off business. To date, there is no proposed Irish equivalent to the UK's "temporary permissions regime", i.e. as concerns the ability to write and service new insurance contracts post-Brexit. Presumably, this is because the Irish authorities need to be consistent with the EU position and such derogations are more for the "future trading relationship" phase of Brexit negotiations.
In legislating, and thereby creating a specific carve-out, it appears by inference that the Irish authorities may not consider that writing or servicing insurance contracts on a "non-admitted" basis (as one would see in the UK) is possible for UK/Gibraltar business into Ireland. The ability to write and service Irish risk on a "non-admitted" basis is a point which has been debated in the context of Brexit.
Finally, it is worth noting that the Bill does not reference reinsurance business. Presumably this is on the basis that, although the UK and Gibraltar will not automatically have equivalence (as the term is understood by Solvency II), it remains the responsibility of the Irish ceding company to choose reinsurers. For example, if it does not reinsure with an appropriate entity, it may not take credit for such reinsurance.
The Bill will be debated by the Oireachtas with a view to having it enacted by mid-March, ahead of the 29 March 2019 deadline.