French risk managers reassured over post-Brexit contract certainty

French risk managers have been reassured by their association AMRAE and market experts that there is no need to panic about the validity of coverage placed with UK-based insurers post-Brexit, but have been advised to double-check sooner rather than later. National insurance supervisors across Europe and the European Insurance and Occupational Pensions Authority (EIOPA) have worked hard during the last three years to make sure there is maximum legal certainty about the validity of cross-border insurance contracts and subsequent claims, however Brexit pans out. At the end of October last year, EIOPA published the responses from national supervisors on their compliance, intention to comply or non-compliance with its 'Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union'. “According to the information received, all national competent authorities comply or intend to comply with almost all recommendations. The recommendations were addressed to national competent authorities of European Economic Area countries except the United Kingdom, with the goal of minimising detriment to policyholders in the event of no withdrawal agreement between the United Kingdom and the European Union,” it stated at the time. The recommendations covered nine different areas including orderly run-off, portfolio transfer, change in the habitual residence or establishment of the policyholder, authorisation of third-country branches, lapse of authorisation, cooperation between national competent authorities, communication to policyholders and beneficiaries, and distribution activities. Alarm bells were set off in France, however, as the French Prudential Supervision and Resolution Authority (ACPR) announced that it did not intend to comply with EIOPA’s sixth recommendation on insurance policies originally sold in the UK by UK insurers to policyholders now resident or established in France. The sixth EIOPA recommendation states: "Where a policyholder with habitual residence, or in the case of a legal person, place of establishment in the UK, concluded a life insurance contract with a UK insurance undertaking and afterward the policyholder changed its habitual residence or place of establishment to a EU 27 member state, competent authorities should take into account in the supervisory review that the insurance contract was concluded in the UK and the UK insurance undertaking did not provide cross-border services for the EU 27 for this contract." But the ACPR said it “cannot comply with this recommendation, taking into account the French regulatory and case-law provisions determining that, in the case mentioned in the recommendation, the place of the risk, initially located in UK or Gibraltar, is modified and is now situated in France”, adding: “Accordingly, this must be covered by insurance entities authorised to exercise in France under Article L 310-2 of the Insurance Code.” Experts agree, however, that this exception will only really affect life policies taken out by individuals who change their residence and should not overly concern companies with business insurance coverage. “I don’t really think that Brexit will lead to a problem on standard claims, though there is of course never a standard claim,” AMRAE president Brigitte Bouquot told Commercial Risk Europe as the French association met for its annual conference this week. “This is because, first of all, the willingness of the insurer not to damage the business relationship with the insured, and second, because of the action of regulators on both sides of the channel,” continued Ms Bouquot. But, as all risk managers should be aware, nothing can really be 100% certain in the complex world of insurance contracts, so any AMRAE members with concerns ought to double-check, advised Ms Bouquot. “There are always open question marks on legal and regulatory topics. If there will be a more complex claim, nobody knows what legal strategy the insurer will play! AMRAE would recommend our members to get the best advisers and inform themselves as support,” she added. Pierre Donnersberg, chairman of leading French independent broker Siaci Saint Honoré, believes the London market is well prepared for Brexit. Lloyd’s has already set up a subsidiary in Brussels, as have most London-based insurers that did not already have EU-based operations. “The final outcome of the trade negotiations between the United Kingdom and the EU is still unknown. But we believe that London will retain a major role in the global insurance market, as it has always shown that it can adapt to a changing environment. Most insurers, including Lloyd’s, have taken the necessary steps to prepare for a hard Brexit and set up companies in other EU countries to continue handling business on a Freedom of Services basis. There is no reason to believe that this will have a negative impact on the payment of claims for French clients,” said Mr Donnersberg. The leading credit ratings agencies are also confident that the supervisors have the situation under control and policyholders need not panic. “The UK’s exit from the European Union will have little immediate impact on rated insurers in the country and across Europe, with the longer-term impact only becoming clear during future trade negotiations and decisions about equivalence,” said AM Best the day before Brexit occurred on 31 January. In the short term, insurance companies in the UK and EU will be able to continue underwriting risks in the European Economic Area (EEA) during the 11-month Brexit transition phase using current passporting rights, said the ratings agency. Catherine Thomas, senior director of analytics at AM Best, noted the UK’s temporary permission regime will allow EEA insurers to continue writing UK risks for up to three years after the UK leaves the EU. The simplest longer-term solution would be for the UK to gain equivalent status to EU insurance regulations, in line with other leading insurance markets such as Bermuda and Switzerland. But it is currently not clear whether this will happen, particularly as the UK government has clearly stated that it will not be a “rule-taker”. AM Best said the UK is well placed to achieve Solvency II equivalence, but added that this does not preclude the UK from diverging from the EU on solvency and regulatory requirements.

French risk managers reassured over post-Brexit contract certainty

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