Beyond Brexit transition – the impact on insurance

Contact: Charles Rix

What's the issue?

During the transition period, access to UK policyholders has continued to be available to EEA (re)insurers and insurance intermediaries using the EU passport regime. However, the access permitted by the EU passport regime will come to an abrupt end into the UK on 31 December 2020. Continued access by EEA insurance undertakings would, without UK mitigating steps, depend on whether there is an EU-UK trade agreement, and even if there is, whether the insurance sector is part

What will happen if there is no deal?

In the event of a no deal, or a deal that does not cover the insurance sector, the UK Financial Conduct Authority and the Prudential Regulation Authority are offering a choice between the Temporary Permissions Regime (TPR) and the Financial Services Contracts Regime (FSCR).  Broadly, these will allow firms to continue to serve UK policyholders for a limited period.

What impact does this have?

The TPR will run for a maximum of 3 years. During that period firms that have notified the FCA or the PRA that they wish to enter the TPR will be able to continue their UK business. The PRA notification window has already closed. The FCA notification window remains open until 30 December 2020. Following entry into the TPR, firms in the TPR will be given a “landing slot” by which time they will be expected to apply to the relevant regulator for UK authorisation.

For EEA passporting firms that do not enter the TPR but continue to service UK policies entered into prior to the end of the transition period (or prior to entering the FSCR if they were previously in the TPR), the FSCR allows them to wind down their business in an orderly fashion over a limited period of time. It applies for a maximum of 15 years for insurance contracts and 5 years for all other contracts. However, if eligible, the regulators expect firms to run down their business in an expedited manner.

What else?

In 2017, the EU and the U.S. signed a Covered Agreement relating to insurance/reinsurance matters, including the removal of collateral requirements in the U.S. and the recognition that U.S. insurance regulation is equivalent for EU Solvency II purposes.  The UK will no longer benefit from that agreement.  Instead the UK and the U.S. have signed an agreement which replicates the terms of the EU/U.S. Covered Agreement.  This will come into force once the domestic processes in both countries have been completed.