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UK: Transition without a transition period: EIOPA issues recommendations on continuity of insurance contracts following no-deal Brexit

On 19 February 2019, the European insurance regulator EIOPA released recommendations for the insurance sector, calling on national supervisory authorities (“NCAs“) in the EU27 to minimise the detriment to insurance policyholders and beneficiaries in case of a no-deal Brexit. Other states in the European Economic Area (“EEA“) can be expected to follow EIOPA’s recommendations. The recommendation follows EIOPA’s call to action for firms to ensure service continuity for cross-border insurance – see our previous blog here.

The recommendations relate to the treatment by insurance regulators in the EU27 of UK insurance undertakings and insurance intermediaries providing cross-border services after Brexit. In particular, EIOPA has sought to allay concerns regarding “contract continuity”, the uncertainty about how UK insurers which have validly underwritten EEA business prior to Brexit, would be able to service that business from 30 March 2019, the point at which the UK will become a third country with no right to “passport” authorisations within Europe.

Prior to EIOPA’s recent recommendations, a number of EEA member states (France, Germany, Ireland and Luxembourg) had taken unilateral steps to ensure continuity of contracts written by UK (re)insurers prior to Brexit. For example, the German insurance regulator BaFin has been given discretionary power to grant UK entities the permission to continue their pre-Brexit insurance activities for a period not exceeding 21 months from Brexit. EIOPA has now asked National Competent Authorities in all EU27 states to take a similar approach.

There are nine recommendations in relation to various issues, including the authorisation of third country-branches, the lapse of authorisation, the cooperation between National Competent Authorities and communications with policyholders and beneficiaries of distribution activities. In its press release, EIOPA highlighted three points in particular:

  • Orderly run-off: Without prejudice to policyholder rights under contracts incepting prior to Brexit, NCAs should attempt to prevent UK insurers from writing new EEA business for which they are not authorised after Brexit;
  • Portfolio Transfers: Provided that transfers were initiated prior to 29 March 2019, NCAs should allow portfolio transfers from UK insurers to EEA insurers to be completed; and
  • Habitual Residence: if a policyholder entered into a life insurance contract with a UK insurance undertaking prior to Brexit, and relocates to an EEA member state after Brexit, NCAs should take into account EIOPA’s view that the UK insurance undertaking will not be providing cross-border services by continuing to honour its obligations under that contract. The approach may change if significant amendments are made to the contract after the policyholder has relocated to the EEA.

EIOPA highlighted in its press release that despite its opinion of 21 December 2017 advising insurance undertakings with affected cross-border business to develop realistic contingency plans for conducting insurance activities (including insurance distribution) after Brexit, as of November 2018, 124 UK insurance undertakings (0.16% of all insurance business in the EU27) have not taken appropriate measures.

The recommendations contain specific comments regarding insurance intermediaries (referred to in the Insurance Distribution Directive as insurance distributors). EIOPA’s view remains that NCAs should ensure that UK intermediaries and entities which intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal are established and registered in the EU27 in line with the relevant provisions of the IDD. So regardless of any transitional provisions implemented in respect of insurers, it appears that insurance intermediaries conducting insurance mediation activities in the EEA will need to be appropriately authorised from the Brexit date.

Ultimately, EIOPA’s recommendations will be implemented on a state-by-state basis, however this guidance will give some comfort to UK insurance undertakings seeking to run-off EEA business after Brexit. However, the transitional arrangements set out in the EIOPA recommendations will not enable UK insurance undertakings to avoid making amendments to business structures if it their intention to write new EEA business after Brexit.

Please contact your Hogan Lovells insurance contact if you would like further information.