London Market Group proposes solution to Brexit dilemmaReprints
The London Market Group on Wednesday released a proposal it said would allow both the European Union and the United Kingdom to maintain access to their insurance markets and control over their respective regulatory systems once Brexit goes into play and the U.K. leaves the EU.
The insurance lobby group’s Brexit taskforce, which represents the U.K.’s commercial insurers, reinsurers and brokers, is proposing a free-trade agreement that would permit mutual market access and recognition of both the EU and U.K.’s prudential regimes.
The agreement would have a Solvency II equivalence outcome built into it, the group said. Solvency II is a directive that codifies and harmonizes EU insurance regulation.
It would also include a recommended framework for supervisory cooperation, which would align regulatory oversight of insurers, reinsurers, brokers and intermediaries in both the EU and U.K.
The agreement proposes a “prudential carve-out” that builds on bilateral agreement between the EU and the United States that went into effect Nov. 7 for reinsurance business. It would allow EU and U.S. reinsurers to operate in each other’s jurisdiction without the need for a local presence, aligning their regulatory systems via a mutual regulatory cooperation and collaboration agreement.
The group is also suggesting a complementary transition period that would provide continuity of client services by allowing the London insurance market to operate as if EU status is preserved until the free-trade agreement is approved. This period would allow sufficient time for the market to reshape in line with the free trade agreement outcomes, the group said.
Separately, the Bank of England on Tuesday said in its November Financial Stability Report that the U.K. and EU would have to pass legislation in order to preserve continuity of existing cross-border insurance and derivatives contracts.
The report said 6 million U.K. policyholders, 30 million European Economic Area policyholders, and around £26 trillion ($34.632 trillion) of outstanding uncleared derivatives contracts could otherwise be affected.
Long-term insurance policies such as life insurance and employer liability business are particularly vulnerable, the report said, noting that some of these contracts extend for decades.
The report said the U.K. government could legislate to ensure that EEA insurers continue to have the permissions necessary to collect premiums and pay out on claims on existing contracts in the United Kingdom.
Given that both U.K. and EEA customers could be affected, the report said, the most effective way to mitigate these risks — other than a bilateral agreement — would be coordinated action by the U.K. and EU authorities.