Global financial services ratings agency, A.M. Best, has said that the fact the UK Government’s EU withdrawal agreement was defeated in the House of Commons, increases uncertainty surrounding the UK’s trading relationship with the EU.
Following the heavy defeat suffered by UK Prime Minister Theresa May on January 15th, 2019 a number of London insurance and reinsurance market participants have commented. The overriding message is that the recent defeat adds further uncertainty to the already confusing and unhelpful situation that is Brexit.
Underwriting European Economic Area (EEA) insurance and reinsurance business on a cross-border basis is, historically, how the Lloyd’s of London, broader London market and other UK insurers have operated.
However, A.M. Best warns that were the UK to exit the EU without a deal, or at the end of any agreed transition period, “passporting rights are expected to cease and U.K.-domiciled insurers will no longer be able to issue insurance contracts in the EEA.”
In response to potentially losing passporting rights, Lloyd’s, and many UK insurers and reinsurers have established new branches in remaining EU domiciles to ensure continuity post-Brexit.
“It is the hope and expectation of the insurance industry that a political solution will be found to this problem; for example, by allowing the grandfathering of existing contracts. In spite of this, affected insurers have been putting contingency plans in place and exploring their operational and legal abilities to settle claims and provide other services to policyholders in individual EEA jurisdictions,” says A.M. Best.
While the majority of companies that are impacted by Brexit and that are rated by A.M. Best have either started to or already successfully transfered their business to their new EU domiciles, the process is expensive and time consuming.
As a result, A.M. Best warns that for some, the transfer process will not be completed by the end of March 2019, which is when the UK is set to leave the EU.
