The terms and timing of the United Kingdom's withdrawal from the European Union (EU) remain uncertain following the vote in the House of Commons on March 12, 2019 rejecting the deal agreed with the EU by Prime Minister Theresa May's government, and the subsequent vote in favour of requesting an extension of Article 50. If an extension is granted by the EU, Brexit will be delayed beyond March 29, 2019.
In a week of significant activity, the U.K. Parliament also voted to reject a no-deal Brexit under any circumstances. Although U.K. insurers have welcomed this outcome, the industry is frustrated that the terms of an orderly withdrawal are still not agreed. Nevertheless, AM Best notes in a new briefing, "U.K. Insurers Rated by AM Best Well Prepared for Brexit", that regardless of when or under what terms the U.K. leaves the EU, rated U.K.-domiciled insurers are generally well prepared.
When the U.K. withdraws from the EU, and at the end of any transition period, passporting rights that currently exist between the U.K. and the European Economic Area (EEA) are expected to cease, and U.K.-domiciled insurers will no longer be able to issue insurance contracts in the EEA. It is also possible that if there is no trade deal encompassing financial services, U.K. insurers will not be able to service existing contracts in certain EEA countries by settling and paying claims. Companies domiciled in other EU countries that conduct insurance business in the U.K. also will be affected by a loss of passporting rights. However, the impact will be cushioned by the U.K. government's Temporary Permissions Regime, which will allow EEA insurers to operate in the U.K. for a maximum of three years post Brexit while they seek authorisation from U.K. regulators.
Catherine Thomas, senior director, analytics, said: "Companies have welcomed announcements by HM Treasury in the U.K. and the European Insurance and Occupational Pensions Authority (EIOPA), which support the orderly run-off of insurance business if there is no withdrawal agreement between the U.K. and the EU.
"In further support of the orderly run-off of existing EU business by U.K. insurers, AM Best notes the announcements made this year by a number of European countries, including France and Germany, that new rules will be put in place to allow claims to be paid by U.K. insurers post-Brexit. AM Best will continue to monitor closely political developments in the U.K. and the EU, and the ability of rated insurers to fulfill their contractual commitments, irrespective of the terms on which the U.K. leaves the EU."
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=283758.
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Catherine Thomas, CFA
Senior Director, Analytics
+44 20 7397 0281
Director, Research, Communications
& Media - Europe, Middle East Africa
+44 20 7397 0322
Director, Market Development Communications
+44 20 7397 0280