UK Prime Minister Theresa May’s desire for a “smooth and orderly” departure from the EU could mean some form of reciprocal passporting for captive owners writing insurance in and out of their respective jurisdictions.
In her first major speech on the substance of the UK’s negotiating position as it prepares to formally quit the EU in March, kicking off a two-year process, May indicated that she wants a “phased period of implementation” for “our mutual interests”, which includes cross-border financial services.
Arrangements for the undefined transition period are a “matter for negotiation”, but the UK intends to “avoid a disruptive cliff edge”, May said.
Ivor Edwards, corporate insurance partner at law firm Clyde & Co, commented: “It's in everyone's interests that financial services can be carried out efficiently across the continent and there has been talk of something equivalent to passporting to aid this.”
“It has advantages in that it may be easy to set up and follow, but the risk is that the UK might lose control of rule setting and equivalence of passporting could be withdrawn or quibbled over. A dispute resolution process would need to be agreed to deal with this.”
Following the UK’s 23 June 2016 vote to leave the EU, Marsh Captive Services explained in a brief to captive owners that restrictions to financial services passporting in and out of the EU could have an effect on their businesses.
“‘Passporting’ refers to the right of UK resident insurers, captives in the UK and Gibraltar, and UK brokers to provide insurance services in EU member states from a single country licence. Since the UK will no longer be part of the EU, that right may be restricted,” the brief explained.
“Similarly, an EU resident captive insurer may need an additional licence to conduct insurance business in the UK. The EU captive insurer may need to form a UK branch or a new UK entity, particularly if it is insuring compulsory classes such as employers’ liability and third-party motor liability risks in the UK.”
“Another alternative would be to use a UK insurer to front the risk. For non-compulsory classes of risks, the EU resident captive could cover the UK risks on a non-admitted basis without applying for a separate licence.”
But, as Marsh pointed out last year, time is still very much on captives’ side.
“The effects of Brexit on captive owners will become more apparent in the months to come, once negotiations start and the terms of the UK’s relationship with the EU becomes clearer.”
“However, the transitional timeline of two years will allow for proper planning and management of the situation for affected captive owners.”
