Amidst the uncertainty surrounding Brexit’s impact on Gibraltar’s insurance industry, Ned Holmes gets an update from Nigel Feetham, partner at Hassans International Law Firm
Uncertainty looms large as the UK stumbles towards the 29 March 2019 date set for Brexit. The sobering possibility of a ‘hard-Brexit’, the UK leaving the EU with no-deal, is being felt by the UK and Gibraltar insurance markets who remain unsure what that eventuality would mean, especially for existing insurance contracts.
According to Nigel Feetham, partner at Hassans International Law Firm, existing insurance contracts in Gibraltar should be protected in the event of a hard Brexit.
In Feetham’s view, in the event of a hard-Brexit, in which a loss of EU passporting rights led to Gibraltar insurers being prohibited from paying claims under existing validly issued insurance contracts prior to Brexit, the Gibraltar Government would leave no “stone unturned in support of the financial services industry, especially as far as Gibraltar’s EU and legal rights are concerned”.
He added: “The same should also be true of the UK Government in the event of a no-deal.”
Gibraltar insurers are currently preparing contingency plans for the consequences of Brexit, which include runoff, portfolio transfers via contractual novation of European books of business, Gibraltar ‘Part VII transfer’ equivalents and redomiciling to a European territory.
One of the issues insurers have had to consider is whether policyholders under existing policies could lose their right to claim in the event of a hard Brexit, which would see the UK and Gibraltar leave the EU following the 29 March 2019 date. No deal would result in a loss of passporting rights.
Feetham stated that there has been much speculation that following a hard Brexit “UK and Gibraltar insurance companies writing EU business would be prohibited from continuing to pay claims under existing [issued prior to Brexit] insurance contracts”.
He explained: “The argument is that insurance authorisation under the EU passporting arrangements permits not just writing insurance business but also performing existing insurance contracts and that without such passporting rights insurance companies may not be able to pay claims (as absent EU authorisation this would be prohibited post-Brexit and insurance contracts could therefore be rendered void).”
This issue may become particularly relevant if the UK were to negotiate an agreement that extends the transitional period beyond 1 April 2019 but excluded Gibraltar from such an arrangement, which according to Feetham the EU has threatened to do.
Feetham stated that in addition to European and human rights legal arguments against this eventuality which could see the matter also being considered by host state (national) courts, it is open to the Gibraltar authorities to challenge it on the basis of “the Gibraltar Constitution as a deprivation of the right to property under section 6, namely, a policyholder with a contractual entitlement (property) under an existing validly issued Gibraltar insurance policy should not be deprived of such right”.
Additionally, he argued that “for the EU to say (if they did) that existing UK/Gibraltar passported insurers cannot ‘continue’ to pay claims in the event of a hard Brexit would hardly be consistent with the EU-wide regulatory objective of treating customers fairly or fair customer outcomes”.
Feetham continued: “If that [the potential breach of the Gibraltar Constitution] is right, arguably, a Gibraltar Court would uphold a customer’s rights, and correspondingly an insurer’s obligation, to pay claims under an existing validly issued insurance contract, notwithstanding the withdrawal of passporting rights by the EU.”
He asked: “Where an insurance policy is sold in good faith under the EU passport regime with authorisation at the time of sale, how can you sever the ability/right to sell from the ability/right to then pay a claim under it and service that contract?”
“Arguably, policyholders have a legitimate expectation that the insurer would remain authorised to pay claims.”
“Understandably, however, Gibraltar insurers will still need to prepare for all Brexit eventualities and take professional advice as appropriate.”
According to Feetham, one of the views currently taken in the UK insurance industry appears to be that grandfathering of existing contracts will be agreed in the end.
He said: “This may explain anecdotally why not all UK insurers are rushing Part VII transfers through the UK courts to get their European books transferred into an EU entity; but even if they all did, perhaps it is doubtful it could be done in time or indeed if they could secure enough Court time to do it.”
“We should find out soon if this view holds true but it is difficult to see how the contrary [no agreement on grandfathering] is in the interest of anyone.”
Since Captive Insurance Times spoke to Feetham, the EIOPA released a supervisory opinion that failed to provide any assurance with regards to grandfathering of existing insurance contracts and contract continuity.
