On 24 January 2019, the Irish Government published the general scheme of the ‘Miscellaneous Provisions (Withdrawal of the United Kingdom from the European Union on 29 March 2019) Bill 2019’ (the “Scheme”).
The Scheme proposes the primary legislative measures that the Government believes are required in the event of a ‘no-deal Brexit’. The focus of the Bill is to protect the citizens of Ireland, and to support the economy, enterprise and jobs – particularly in those key economic sectors that would be most affected by a no-deal outcome.
The Government has been called upon by the European Commission to implement many of the measures that are contained in the Scheme, as have all other EU countries, in its ‘Contingency Action Plan’. The proposed legislation is intended to be consistent with and complementary to steps currently underway at EU level. Therefore, Ireland will not be in a position to adopt more liberal measures than are generally available to the other EU 27 Member States.
Implications for insurance sector
Part 8 of the Scheme deals with proposed amendments to existing Irish law regarding the conduct of insurance business (in the case of insurance companies). There are also proposed amendments to the Insurance Distribution Directive regime (in the case of insurance intermediaries). The amendments accord with European Commission advice that Member States may put in place appropriate national measures regarding insurance contract continuity following engagement with the European Insurance and Occupational Pensions Authority (EIOPA).
A temporary run-off regime has been proposed to deal with the servicing of existing insurance contracts with Irish policyholders by UK and Gibraltar based entities. In effect, the same approach is adopted for both insurance companies and intermediaries. Where the entity in question:
- is authorised in the UK or Gibraltar (registered in case of intermediaries);
- has exercised its right to carry on insurance business (or, as the case may be, insurance intermediary business) in Ireland on a freedom of establishment or freedom of services basis;
- has ceased to write new business in Ireland; and
- is exclusively administering its Irish book of business, then that entity may continue to carry on its run-off activities in Ireland for a three year period following the 29 March 2019 exit date. All of the Irish business of the entity must be in run-off and the entity cannot, under the current approach, rely on this regime while it seeks authorisation to continue writing Irish business from the UK/Gibraltar.
What is not dealt with?
With regard to timing, it is significant that the provisions in the Scheme concerning run-off are only of benefit for a three year period. Accordingly, if business takes longer than three years to run off, then any activity conducted outside this period will not benefit from the special regime being proposed. This may put UK/Gibraltar insurers under some pressure to settle claims more quickly than might be in their interest to do so commercially. Also, a liability claim in respect of a policy that was issued prior to the UK’s date of exit from the EU may not materialise for a number of years and it may be that UK/Gibraltar insurers will not be in a position to meet the claim at that point, if to do so would be regarded as a breach of applicable Irish laws. We expect that the run-off period will be of limited benefit to entities offering life policies, as such policies by nature will run for longer than three years.
As concerns the servicing of Irish business, the approach in the Scheme is similar to the UK’s intended “financial services contracts regime” but with a shorter three year carve-out and only for run-off business. To date, there is no proposed Irish equivalent to the UK’s “temporary permissions regime”, i.e. as concerns the ability to write and service new insurance contracts post-Brexit. Presumably, this is because the Irish authorities need to be consistent with the EU position and such derogations are more for the “future trading relationship” phase of Brexit negotiations.
In legislating, and thereby creating a specific carve-out, it appears by inference that the Irish authorities may not consider that writing or servicing insurance contracts on a “non-admitted” basis (as one would see in the UK) is possible for UK/Gibraltar business into Ireland. The ability to write and service Irish risk on a “non-admitted” basis is a point which has been debated in the context of Brexit.
Finally, it is worth noting that the Scheme does not reference reinsurance business. Presumably this is on the basis that, although the UK and Gibraltar will not automatically have equivalence (as the term is understood by Solvency II), it remains the responsibility of the Irish ceding company to choose reinsurers. For example, if it does not reinsure with an appropriate entity, it may not take credit for such reinsurance.
The introduction to the Scheme itself notes that it needs to maintain flexibility to reflect political developments that may take place over the coming months.
The Government has indicated that drafting on the Bill is now taking place, with an expected publication date of 22 February 2019. Following that, the Bill will be debated by the Oireachtas with a view to having it enacted by mid-March, ahead of the 29 March 2019 deadline.
We will examine the Bill in detail once it is published in full and update you as to any developments of relevance to the insurance industry.
Contributed by: John Larkin
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