Recent announcements made by the PRA and FCA clarify their approach to Brexit following the European Council’s agreement to a transition period for the UK’s withdrawal from the EU. In particular, insurers, insurance intermediaries and other financial services firms have been encouraged to assume that they will continue to benefit from passporting rights until December 2020. Whilst this is a welcome development, firms cannot be complacent:
- As “nothing is agreed until everything is agreed”, there can be no certainty about the transition period until all terms of the Withdrawal Agreement are approved, which will only come much later (if at all) in the Brexit negotiations.
- Failing such agreement, the UK’s “temporary permission” regime will enable firms coming into the UK from other EEA jurisdictions to carry on business here while they obtain the PRA and FCA authorisations needed for those activities. UK firms with EEA operations seem unlikely, however, to benefit from a similar concession.
- In practice, this means that UK firms with significant EEA interests are continuing to plan, for now at least, on the assumption that there will be no transition period. Otherwise, they risk disruption to their business if the UK leaves the EU without agreeing the envisaged transition period as part of the terms for its withdrawal.
We consider the latest announcements from the PRA and the FCA. We also note the PRA’s policy statement (PS4/18) and Supervisory Statement (SS2/18) on its approach to branch authorisation and supervision, which were issued at the same time. Continue reading
In Allianz Insurance and Sirius International Insurance Corporation v Tonicstar Limited  EWCA Civ 434, the Court of Appeal has reversed the decision of the High Court on whether a party-appointed arbitrator met the contractual requirements as to requisite experience. The dispute arose under a reinsurance contract that incorporated the “Excess Loss Clauses” of the Joint Excess Loss Committee. The arbitration clause required the arbitrators to have “experience of insurance and reinsurance”. The Court of Appeal held that that an English QC with experience of insurance and reinsurance law was sufficient to comply with this requirement.
This decision is of particular interest as such challenges to arbitrators rarely come before the courts. It highlights the importance of drafting arbitration clauses clearly, particularly where parties require their arbitrators to possess certain qualifications or experience. If insurance parties want a tribunal convened of one or more market practitioners, as opposed to lawyers with sector experience, this should be clearly expressed.
For more on this decision, see our arbitration team’s blog post here.
We are pleased to share with you our Insurance and Reinsurance Disputes Annual Review of 2017, published today, which provides an overview and analysis of the key cases and developments affecting those engaged in or with contentious matters in the insurance and reinsurance market.
Please click here, or on the picture below, to access the 2017 Review.
Paul LewisPartner, dispute resolutionEmail
+44 20 7466 2138
David RestonPartner, dispute resolutionEmail
+44 20 7466 2244
Anthony DempsterPartner, dispute resolutionEmail
+44 20 7466 2340
Alexander OddyPartner, dispute resolutionEmail
+44 20 7466 2407
Sarah McNallyPartner, dispute resolutionEmail
+44 20 7466 2872
Greig AndersonPartner, dispute resolutionEmail
+44 20 7466 2229
On 20 December 2017, the Treasury, PRA and FCA clarified their approach to EEA-headquartered financial services firms wishing to carry on business in the UK post-Brexit. More recent evidence to the House of Commons Treasury Committee (“TC”) sheds further light on the PRA’s thinking. It also highlights the difficulty for the PRA of giving guidance to firms while so much uncertainty surrounds the UK’s future relationship with the EU.
The PRA’s consultation (CP30/17) on its approach to third country insurers, a separate “Dear CEO letter” and comments made to the TC on 16 January merit further comment.
To read the full article, click here. Continue reading
This article was first published on Thomson Reuters Regulatory Intelligence on 17th January 2018.
On 12 December 2017, the PRA published the second in a series of three consultation papers on reforms to the Solvency II regime (CP27/17). The PRA’s proposals are intended to reduce how often an insurer must apply for approval of changes to its internal model, specifically where approval is needed for an accumulation of minor changes. A process for quarterly model change reporting is also proposed.
The third, and final, consultation paper in the series (CP2/18) was published on 12 January 2018 and proposed some changes to reporting requirements.
CP21/17, the PRA’s first consultation paper in this series, concerns the matching adjustment and is open for comments until 31 January 2018 (see our blog entry of 17 November 2017).
Other aspects of Solvency II that the PRA has confirmed it is looking at are:
- recalculation of the Transitional Measure on Technical Provisions – the PRA is looking at further simplification of the recalculation process; and
- external audit of Solvency and Financial Condition Report – the PRA is gathering evidence on whether its approach remains proportionate, particularly for smaller firms.
Responses to CP27/17 and CP2/18 are required by 20 March 2018 and 13 April 2018 respectively. This article looks, in particular, at changes proposed by CP27/17.
An opinion published by EIOPA on 21 December 2017 raises concerns for UK insurers who have policyholders in EEA states other than the UK. This will include, for example, every life company with annuitants living in an EEA state*, perhaps because they moved from the UK on retirement.
Insurers have been aware of issues raised by Brexit for legacy contracts written (or performed) cross-border since the UK referendum on EU membership (see, for example, our client briefing issued in July 2016). However, it has been widely hoped, to now at least, that a sensible compromise would be reached by the UK government and EU authorities to ensure that firms do not need to embark on expensive and time-consuming processes to avoid detriment to policyholders once the UK finally leaves the EU. Such a compromise currently appears less likely. Continue reading
Delay to IDD start date
The EU Commission published draft legislation today (in the form of a proposed Directive and a proposed Delegated Regulation) to delay the IDD start date to 1 October 2018. It has agreed to requests for a delay made by the European Parliament and a number of Member States despite expressing the view that industry has already been given considerable time to adapt to the new rules. Individual states are still required to transpose the IDD into domestic regimes by 23 February 2018. The European Parliament and the Council will need to agree the new date in an accelerated legislative procedure.
Brexit – UK approach to incoming financial services firms
The Treasury, PRA and FCA have today set out proposals for dealing with EEA-headquartered financial services firms wishing to conduct regulated activities in the UK post-Brexit. The concern, of course, is how those firms, including (re)insurers and (re)insurance intermediaries, can operate in the UK once they have lost passporting rights (assuming that they do so).
In a decision that will be of interest to professional indemnity insurers as well as financial institutions and valuers, the Supreme Court has overturned a decision of the Court of Appeal and found in favour of the Defendant valuer in a professional negligence claim.
The Supreme Court, in Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd  UKSC 77, held that where a lender advanced money on the basis of an initial valuation, then refinanced the facility (effectively repaying and replacing the original loan) on the basis of a second negligent valuation, the liability of the negligent valuer was limited to the ‘top up’ element of any additional lending. The valuer was not liable for the whole loss attributable to the entire amount of the second loan. Continue reading
Cyber incidents have the capacity to cause many different types of loss. Insurance coverage exists for at least some aspects of cyber risks in the UK market. However, given the range and diversity of risks that may arise, there are some key issues for businesses to consider when it comes to insurance against cyber risks in commercial contracts. Click here to read an article on these issues by Sarah McNally and Andrew Moir that was first published in the December 2017 issue of PLC magazine.
In Crowden and Crowden v QBE Insurance (Europe) Ltd  EWHC 2597 (Comm) the Commercial Court found in favour of the Defendant insurer on the disputed construction of an “insolvency” exclusion in a professional indemnity insurance policy. The case is a useful reminder of the approach which the English Courts take to the construction of exclusions in insurance contracts. Continue reading