Home Knowledge Establishing a Third Country Insurance Branch in Ireland – A Potential Post-Brexit Solution for UK Insurers?

Establishing a Third Country Insurance Branch in Ireland – A Potential Post-Brexit Solution for UK Insurers?

The Solvency II regime facilitates a non-EEA insurer establishing a branch operation in an EEA Member State subject to meeting specific regulatory requirements (a “Third Country Branch”). Post-Brexit, the UK will be regarded as a “third country” and therefore, a UK insurer may avail of the provisions of Solvency II which enable third country insurers to establish a Third Country Branch in an EEA Member State. 

Significantly, a Third Country Branch does not have the right to passport into other jurisdictions similar to an EEA-subsidiary and accordingly, it would only be permitted to write business in the jurisdiction in which it is established. Clearly, establishing a Third Country Branch may not then represent a comprehensive solution for UK insurers seeking to maintain their access to the Single Market unless such an insurer establishes a Third Country Branch in each of the EEA Member State territories in which it currently writes business. That said, for UK insurers with existing branches in EEA Member States, the Third Country Branch model may warrant close consideration. 

Ireland & Third Country Branches

There are currently no Third Country Branches established in Ireland and historically, even under the pre-Solvency II regime, examples of Third Country Branches are relatively rare. From a business perspective, one can assume that the practical need for third country insurers to set up such a branch operation in Ireland is hard to justify. However, the harsh reality of a “hard-Brexit” has stimulated interest levels from UK insurers with existing Irish branches in formulating their Brexit contingency plans.

Chapter 1 of Part 12 of the European Union (Insurance and Reinsurance) Regulations 2015 (the “2015 Regulations”) (implementing the Solvency II Directive in Ireland) sets out the requirements regarding the establishment of a Third Country Branch under Irish law. Although there is currently no guidance in place from the Central Bank of Ireland (the “Central Bank”) on the authorisation process or related requirements, we understand that the Central Bank expects to issue a publication in this regard later this year or in early 2018. However, the 2015 Regulations do contain considerable detail as to the requirements with which UK insurers must comply.  

Applying for authorisation 

Regulation 176 of the 2015 Regulations sets out the main conditions which an applicant seeking to establish a Third Country Branch in Ireland would be required to satisfy. In general terms, an applicant is required to establish a permanent presence in Ireland and comply with significant minimum capital requirements to be held within the Irish State and deposited with the Irish High Court as security. A “scheme of operations” (business plan) will also need to be submitted containing detailed information on the nature of the branch business, the system of governance, estimations on future capital requirements, establishment costs and financial projections for the first three years. 

In addition, an applicant would need to consider the EIOPA ‘Guidelines on the Supervision of branches of third-country insurance undertakings’ which contain specific guidance on requirements relating to branch assets and liabilities, governance and risk management, supervisory reporting and other important aspects. 

From a substance point of view, the Central Bank will expect an appropriate presence of senior management positions in Ireland proportionate to the nature, scale and complexity of the proposed business of the Third Country Branch. In particular, the Third Country Branch must appoint a “general representative” which position is subject to the Central Bank’s prior approval (i.e. PCF – 41 under the Central Bank’s fitness and probity regime).  Additionally, the Central Bank will assess whether the applicant’s proposed governance arrangements ensure that effective decision-making and risk management occurs within Ireland. 

Although there is no prescribed processing timeline (as yet) for an authorisation application to the Central Bank, it seems reasonable to assume that it will be along similar lines to an EEA subsidiary application i.e. within six months from receipt of a completed application.  

Advantages to multiple Third Country Branch authorisations

Under Solvency II, where a third-country insurer has obtained branch authorisation in multiple EEA Member States, it can apply for a number of specified advantages including: 

  • calculating their Solvency Capital Requirement in relation to their entire EEA business by taking into account only the operations of branches in the EEA;
  • having one EEA supervisor to monitor solvency; and
  • localising assets representing the Minimum Capital Requirement in one of the Member States where they have a branch. 

An application to benefit from these advantages must be made to all of the relevant supervisory authorities concerned and they all must agree for the advantages to be granted. 

Concluding remarks

It is important to be clear that the 2015 Regulations (or the Solvency II Directive) do not provide for the treatment of a Third Country Branch of an Irish insurer. Therefore, post-Brexit, if an Irish insurer proposes to continue or commence writing business in the UK on a branch basis, there is currently no legislative framework in place which facilitates such an approach. The authorisation and ongoing supervision of such a Third Country Branch established in the UK will need to be approved by, and subject to regulation by, both the UK and the EU (by the parent entity). 

Finally, a practical point to note from a timing perspective is that it is unlikely that the Central Bank (or indeed any EEA supervisory authority) would be in a position to accept a Third Country Branch application from a UK insurer until the UK formally leaves the European Union. However, it may be that the Central Bank would review and provide unofficial  feedback on a Third Country Branch application in advance of the UK’s formal departure from the EU.

Contributed by Catherine Carrigy

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