The vote in June to leave the EU set the UK on course for leaving the European Union, the first time that an independent state has done so. Despite the uncertainty surrounding specific dates, decisions and conditions, law firm holman fenwick willan (HFW) has listed seven things which insurers should consider immediately.
1. Passporting:
Many (re)insurers and intermediaries currently have a “passport” to provide regulated insurance services on a cross-border basis from the UK into other EU member states (and vice versa), or have established a branch of a UK company in other EU member states (and vice versa). If an agreement is not concluded between the UK and the EU in relation to passporting, these passporting rights would be lost. One option would be to establish an EU member state-based subsidiary.
2. Entering and exiting Europe
Should the subsidiary option be chosen, the process of obtaining authorisation, either in the EU or in the UK, would likely be costly and time-consuming and should be commenced well in advance of the formal split.
3. Migrating within the EU
Another option would be to migrate to another EU member state. The existing methods for migrating a UK business to an EU member state include undertaking an insurance business transfer known in the UK as a Part VII transfer, effecting a cross-border merger or converting to a Societas Europaea (SE) and migrating the SE into or out of the UK. It remains to be seen whether these methods will be available after the UK leaves the EU. HFW said that “it may be prudent to use them while they remain available”.
4. Changes to UK laws and regulations
While HFW expects the UK to maintain its current insurance regulatory regime, businesses which remain in the UK may have to deal with changes to UK laws and regulations which have direct effect in the UK or implement EU Directives. HFW expects that the UK “will strive to maintain its equivalence under Solvency II for group supervision, group solvency and reinsurance”. However, there may be some beneficial changes which do not affect the UK’s equivalence. HFW also said that it would not be surprised to see some “gold-plating” of UK rules which implement maximum harmonising Directives.
5. Enforcing judgments
A (re)insurer or intermediary involved in a claims-related or commercial dispute might find that, post-Brexit, the judgment is harder to enforce in EU member states. Enforcement is automatic under the Recast Brussels Regulation 1215/205 but, without an agreement to continue this reciprocal arrangement, the local courts would need to determine the issues forming the basis of the judgment. HFW recommends that companies “aim for final determination of existing litigation as soon as possible and consider arbitration for new disputes”. Enforcement of arbitration awards will not be affected as the UK and all other EU member states are signatories to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
6. Service of proceedings
Service on parties in EU member states is currently relatively straightforward thanks to the EU Service Regulation: there is no need to ask for leave of the English Court to serve out of jurisdiction. But if no equivalent regime is established upon leaving, the UK might revert to and enact the 1965 Hague Convention
Should this scenario occur, service will be time-consuming and more expensive, perhaps taking up to six months. HFW advises insurers to “consider how this impacts litigation strategy in active cases”.
For new agreements, if contractual counterparties will not agree to arbitration, HFW says insurers should “insist that they appoint a UK agent for service of process”.
7. Strategy in a migration scenario
Other factors that insurers would want to consider if they chose the “emigration” scenario include
Solvency II. This legislation is “maximum harmonising”, while the Insurance Mediation Directive is “minimum harmonising” but the regulatory approach in each member state may vary – how manageable for the business is the approach of the target state’s regulator?
Head Office Location: Given that the business’s head office will need to be located in the target state, to which jurisdictions can the business realistically move its head office?
Tax Rates: Are the corporate tax rate and the individual tax rates and social charges attractive in the target state?
Repatriating Profit to UK: Will the target state’s laws make it difficult to extract capital or profits from the business?
Geography: From a practical perspective, how physically accessible will the target state be, and will the language and culture of the target state make it easy to continue business?
Staffing: Will professional staff and relevant services be available in the target state?
Employment Law: Given that employment laws vary widely throughout the EU, what would be the impact of the target state’s employee rights and protection?
Other laws and regulations: Consider whether other laws and regulations in the target state will have a significant impact on your business, for example, data protection law, business regulation, and fairness and efficiency of court and governmental processes.