Against the backdrop of the potentially ongoing renegotiations of the Withdrawal Agreement between the EU and the UK or a Hard Brexit, the German legislator has today adopted preliminary provisions to authorise the regulator to temporarily extend passporting rights of UK financial institutions including insurers in the event of a no-deal. These measures are part of a wider set of legislation concerning primarily tax matters (Brexit-Steuerbegleitgesetz – Brexit-StBG) and allow the extension of passporting rights post-Brexit for up to 21 months.

No-deal Brexit implications for insurance contracts with UK insurers under EU Law

As was recently confirmed by EIOPA in its Recommendations for the Insurance Sector in Light of the United Kingdom Withdrawing from the European Union, the European regulator is of the opinion that UK insurers will not be able to service existing insurance contracts after the lapse of their passporting rights in case of a no-deal Brexit. EIOPA has, however, suggested that regulators could consider restricting the issuance of a new authorisation of these UK insurers to the winding-up of existing business, thereby speeding up the authorisation procedure. In addition, EIOPA has taken the view that national authorities should allow the finalisation of portfolio transfers by UK insurers without an authorisation post-Brexit provided that the process was initiated before the withdrawal date.

No-deal Brexit implications for insurance contracts with UK insurers under German Law

Under German insurance contract law, Brexit will not automatically cause the insurance contracts to be void as the lack of a licence does not affect the effectiveness of a contract. However, the prevalent opinion in German insurance supervisory law is broadly in line with EIOPA, requiring insurers to make use of any termination rights to wind up the business, with several opinions also doubting the possibility to fulfil contracts where such a termination is not possible, creating considerable uncertainty.

In light of this, the German legislator has today unilaterally adopted an enabling provision for the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), the German regulator, to extend passporting rights for UK insurers for up to 21 months to allow an orderly wind-up. The period is identical with the transition period that is foreseen under the Withdrawal Agreement. Underwriting of new business is explicitly excluded and the insurers will be required to terminate existing contracts, obtain a new authorisation, or transfer the business to a licensed risk carrier. The provision also enables BaFin to issue a general ruling, extending passporting rights for all UK insurers through one administrative decision for a certain period.

In the course of the legislative procedure, it had been suggested to leave the duration of the extension to the discretion of BaFin, even beyond 21 months, to account for complex long-term insurance contracts where a timely wind-up might not be possible. However, this proposal was ultimately rejected, and it remains to be seen whether BaFin will make use of the full 21 months when extending passporting rights at all. Experience shows that the regulator is rather hesitant in granting wide-ranging exemptions. In light of EIOPA's recent recommendation to allow the finalisation of wind-ups that have been started before the lapse of passporting rights, it is also unclear whether a longer extension would actually be needed in these cases.

The German provision is in line with similar initiatives in other EU member states like France and Spain. To that extent, EIOPA has also recently underlined the need for enhanced cooperation to address issues arising from unauthorised cross-border insurance among the EU27 and is in the process of setting up platforms to foster such cooperation.

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