Global ratings agency A.M. Best expects UK insurers and reinsurers will still be able to underwrite reinsurance on a cross-border basis post-Brexit, but warns that the Solvency II regulatory treatment of these contracts is dependent on the UK achieving reinsurance equivalence by the European Union (EU).
The ratings agency continues to closely watch the response of UK insurers and reinsurers to the country’s planned withdrawal from the EU, noting that when this happens, at the end of any transition period, passporting rights that are currently in place between the UK and the European Economic Area (EEA) are expected to close.
Exactly what position UK insurers and reinsurers will find themselves in following the UK’s withdrawal remains uncertain, but A.M. Best warns that in the absence of a political solution, it is possible that UK-based companies will no longer be able to issue contracts in the EEA, and they will not be able to service existing EEA contracts.
However, A.M. Best notes that with the exception of a small number of EEA jurisdictions, it expects that UK firms will be able to underwrite reinsurance business on a cross-border basis post-Brexit.
“However, the Solvency II regulatory treatment of these contracts will depend on whether the UK is granted reinsurance equivalence by the EU,” continues A.M. Best.
Numerous insurers and reinsurers have established new branches in a remaining EEA jurisdiction in order to ensure continuity for clients whatever the outcome of the UK’s vote to leave the EU, although A.M. Best notes that this does not address the issue that companies might not be able to service existing EEA contracts in the event of a loss of passporting rights.
The ratings agency notes that the majority of companies it rates have either finalised or initiated a transfer of their EEA business from their UK insurer to an affiliated EEA insurer under Part VII of the Financial Services and Markets Act 2000.
“However, the Part VII transfer process is expensive and time consuming, with transfers subject to extensive regulatory scrutiny and court approval. The process is further complicated if business has been underwritten on a pan-European basis, as is often the case for large commercial clients, as it is difficult to separate assets and liabilities into U.K. and other EEA components.
“Consequently, a number of Part VII transfers will not be complete by the end of March 2019. In these cases, a transition period following the United Kingdom’s withdrawal from the EU is necessary to allow time for the transfer of policies to be completed,” commented Yvette Essen, director of research, A.M. Best.
