The decision of the United Kingdom (UK) to leave the European Union (EU) has implications for insurers and pension providers, supervisors and, of course, consumers.

Immediately following the results of the referendum, EIOPA (European Insurance and Occupational Pensions Authority) started to assess the required steps to minimise risk to business and to consumers. From the outset, EIOPA’s position was clear: to prepare for every eventuality, including the possibility of no political agreement. A no-deal scenario is one that cannot be fully excluded, despite the most recent flexible extension of the date of the UK’s departure from the EU to 31 January 2020.

In the event of a disorderly Brexit, insurers and pension providers in the UK and Gibraltar on the one side and in the remaining 30 European Economic Area (EEA) countries on the other would no longer be able to operate by making use of passporting rights under Internal Market conditions. This poses a risk to the service continuity of existing contracts and may create uncertainty for policyholders.

To support supervisors and industry prepare for a no-deal scenario, EIOPA has issued four Opinions to mitigate the risks for policyholders, beneficiaries and insurers. These Opinions focus on supervisory convergence, service continuity, impact on solvency and disclosure of information to customers on the impact of Brexit.

EIOPA follows the developments in the negotiations closely and the steps taken by supervisors and insurers.

Most UK insurers with large cross-border business have taken action and implemented contingency measures, for example, portfolio transfers to set-up third country branches or subsidiaries in the remaining EEA countries. Nevertheless, there is still some residual UK insurance business within the remaining EEA countries for which the contingency plans will have not been completed by the date the UK leaves the EU.

To mitigate the detriment to policyholders and beneficiaries in such cases and ensure risk-based supervision of the run-off of cross-border contracts, in February 2019 EIOPA issued ‘Recommendations on the treatment of cross-border services from residual contracts of UK undertakings after the withdrawal date’.

All national supervisory authorities have stated compliance or intention to comply with almost all of EIOPA’s Recommendations.

At national level, transitional measures have been implemented in a number of remaining EEA countries allowing UK insurers to run-off residual business after the Brexit date without contingency plans. National supervisory authorities are expected to address any issues arising from the completion of the contingency plans and the run-off of residual business with the individual insurers concerned on a case-by-case basis.

From a financial stability perspective the current direct exposure of EU-based insurers to the UK industry are considered to be rather limited. Second round effects, however, resulting from the impact of a no-deal scenario on the wider economy are more difficult to assess and  the risk remains that a disorderly Brexit could result in potential significant repercussions across financial markets.

To ensure sound prudential and conduct supervision of (re) insurers operating cross-border and to maintain financial stability after the UK has left the EU, EIOPA and its Members have agreed on memoranda of understanding with the Bank of England and the Financial Conduct Authority. These memoranda cover supervisory cooperation, information exchange and mutual assistance in the field of insurance regulation and supervision. In the area of supervision of occupational pension institutions, EIOPA and its Members have agreed upon similar memoranda of understanding with The Pension Regulator.

As the date of the UK’s departure from the EU approaches, EIOPA will continue to closely monitor and assess the developments and take all necessary actions as part of its mandate to minimise risk to policyholders and beneficiaries.

This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies.

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