SOURCE: LLOYD’S LIST
• Monday 27 March 2017, 11:43
• by Michael Faulkner
Companies prepare to undertake Part VII transfers of European business and consider Brexit clauses
UK insurers are preparing to undertake portfolio transfers of European business and are considering the use of “Brexit clauses” in multi-year contracts as they begin to devise plans for the UK’s exit from the European Union (EU).
With Britain’s prime minister Theresa May set to trigger Article 50 and begin the exit process from the EU, lawyers have reported an increase in enquiries from insurers about so-called Part VII transfers of books of European business written in the UK.
Transferring a portfolio to a European subsidiary would allow the insurer to continue to provide cover and pay claims if the UK loses passporting rights, lawyers said. This approach could be more tax-efficient than renewing policies into the European entity.
But with a typical two-year timetable for undertaking a Part VII transfer, lawyers said the application process would need to begin as a matter of urgency. Experts said regulators are putting such transfers under greater scrutiny than ever before.
A portfolio transfer would typically be undertaken alongside the process of creating a new subsidiary in Europe that would write new business after Brexit.
“Insurers would want to put their applications in for a new European carrier as soon as possible and put in place a transfer of European business,” Ivor Edwards, European head of the corporate insurance group at Clyde & Co, told Lloyd’s List sister publication Insurance Day.
“Both of these take time. You can’t wait to see how the negotiations go,” he said.
Edwards said the firm was starting to receive enquiries from UK insurers about Part VII transfers.
Brokers also said “Brexit clauses” were also being considered by some carriers for policies in which cover could extend beyond the UK’s exit.
“These clauses are being thought about,” Nicolas Aubert, head of GB for Willis Towers Watson, told Insurance Day.
Policies written before Brexit that provide cover beyond that date could present problems for insurers.
In many EU states, providing cover for a risk situated in that state is a regulated activity, which UK insurers would not be authorised to perform after a hard Brexit.
In the absence of transitional arrangements, UK insurers would have to cancel non-exempted cover with effect from the date of Brexit and return the premium covering the period after cancellation.
Lawyers said the form a Brexit clause would take would vary from class to class. “Insurers would have to consider both the events that trigger the clause and the consequences of triggering the clause,” Richard Spiller, partner at Holman Fenwick Willan, said.
For example, a Brexit clause could provide for cover to cease immediately on Brexit and for the calculation of the premium refund, or it could give the insurer the right to transfer the policy to an EU subsidiary or insurance partner.
Earlier this month, AIG became the first major insurer to unveil its plans to deal with the UK’s exit from the EU. The global insurance giant is to set up a subsidiary company in Luxembourg to write business in the European Economic Area (EEA) and Switzerland from 2019.
At present, AIG writes business in Europe from a single insurance company based in the UK, AIG Europe Ltd, which has branches across the EEA and Switzerland.
Lloyd’s is planning to announce its decision on an EU subsidiary by the end of this month.
This article is also published in Insurance Day, a Lloyd’s List sister publication.