BoE highlights Brexit cross-border insurance contracts threat

Written by Adam Cadle

28/11/2017

Legislation is needed from both the UK and the EU to preserve cross-border contracts for insurers, the Bank of England has said in its latest report highlighting the Brexit threat to the insurance industry.

The BoE's Financial Stability Report said without legislation from both the UK and the EU, "six million policyholders, 30 million European Economic Area policyholders, and around £26trn of outstanding uncleared derivatives contracts could otherwise be affected".

"HM Treasury is considering all options for mitigating risks to the continuity of outstanding cross-border financial services contracts," the report added.

To ensure continuity of contracts with their EEA customers, some UK insurance companies are planning to transfer insurance contracts to legal entities located in the EEA that have the required authorisations. Such transfers can be done in bulk using the procedure in Part VII of the Financial Services and Markets Act 2000.

"This is expected to result in a significant increase in the required volume of such transfers, which is likely to be challenging in the time available," the Bank of England said.

"This, with their complex nature, means that there are significant execution risks to such transfers. Insurers located in the EEA would need to ensure their activities in respect of existing UK business are performed by entities with the correct permissions in the UK. The PRA plans to set out its approach to authorisations before the end of the year."

ABI director general Huw Evans said: "Today's report from the Bank of England is right to emphasise the impending threat of insurance companies not being able to service cross-border contracts after Brexit.

"This is an issue which could impact many millions of policies and other contracts and which needs addressing urgently via a political agreement to allow these policies to run on, to give customers certainty and to prevent financial upheaval. The last thing insurers want is to be left with the impossible choice of breaking a contract with a customer or to risk breaking the law."

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