Rt Hon. MP, Chair of the Treasury
Committee, has written to Rt Hon. MP, Chancellor of the
Exchequer, about the treatment of cross-border pensions and
insurance contracts written prior to Brexit.
“The possibility that UK providers may not be legally able to pay
out pensions or insurance contracts to citizens in the EU –
including UK expats – is a stark example of the consequences of a
“cliff edge” Brexit. The ABI is right to raise this concern with
the Treasury Committee and Government.
“Both the UK and the EU have a strong mutual interest in
resolving this problem, in line with their shared objective of a
smooth and orderly Brexit.
“It is therefore surprising that there have been no position
papers from the Commission or the Government proposing how it
might be addressed. I have written to the Chancellor to get
further clarity on the Government’s thinking.
“The Committee will no doubt want to examine the scale of the
problem with the regulators, and may take evidence from the
insurance industry.”
Notes to Editors
· Mrs Morgan’s letter to Mr Hammond, and a briefing from the
Association of British Insurers (ABI) – Brexit and Insurance
Contracts: Why preserving customers’ rights after 2019 requires
urgent action – are attached.
· In its briefing document, the ABI states that insurers and long
term savings providers must be authorised in an EU country in
order to sell a contract to an EU customer, continue to pay
claims, and accept premiums on existing contracts.
· Insurance companies currently sell contracts from the UK to
businesses and individual customers in the rest of the EU and
vice versa. Insurers also continue to service insurance contracts
to UK citizens who have moved abroad e.g. a British pensioner who
has retired in Spain.
· These contracts often have a long duration: for instance
private pensions (essentially a long-term insurance contract) can
have durations of 30+ years; insurance against negligence by
company directors and officers typically lasts 5-10 years.
· Passporting rights are often used by many insurers in the UK
and the EU27 to do this business. They will sell contracts either
directly from one country to another using ‘Freedom of Services’,
or they will establish a branch in the UK
· In the absence of any action or agreement, on Brexit day,
passporting will end and insurers will lose the legal
authorisation to service these contracts. They must break the
contract or break the law.
· In particular, expatriates with a (private) pension from a UK
provider may find their payments stopped (as the provider can no
longer legally service the contract cross-border).
· According to the ABI, insurers who want to continue to sell new
contracts in the EU27 are already establishing authorised
companies there. This is a lengthy process which requires
approval from a national regulator in an EU27 member state.
· In respect of existing contracts, to get around the problem,
the insurer could (i) establish a subsidiary in the rest of the
EU, or (ii) sell the contracts to an EU-based insurer. Both
require the application to, and agreement of, the UK courts, to a
transfer of business under Part VII of the Financial Services and
Markets Act 2000. This takes around 18 months. They also require
compliance with relevant law in the EU Member State (and in
particular, in the case of (i), the securing of relevant
permissions from the national regulator).
· The ABI have argued that the treatment of cross border
contracts written pre-Brexit and still in operation post-Brexit
needs to be fixed urgently:
‘If nothing is fixed, insurers will be left in an impossible
position and face an unacceptable choice: Break their promise to
customers or risk breaking the law.’
· The ABI is calling for an arrangement whereby contracts written
prior to Brexit day can be “run down” for their duration: in
effect, a guarantee that they retain the same regulatory
treatment as when they were first written.
