Embed Size (px)
Citation preview
July 2016
Impact of Brexit on UK andEuropean insurance businesses
Some members of our global insurance team
Tim GogginPartner, LondonT +44 20 7296 [email protected]
Steven McEwanPartner, LondonT +44 20 7296 [email protected]
Charles RixPartner, London; Head of Insurance Industry SectorT +44 20 7296 [email protected]
Sebastien GrosPartner, ParisT +33 1 53 67 16 [email protected]
Beata Balas-NoszczykPartner, WarsawT +44 20 7296 [email protected]
Christoph KueppersPartner, DusseldorfT +49 (211) 1368 [email protected]
Joaquin Ruiz-EchauriPartner, MadridT +34 91 349 82 [email protected]
(James) Tony FitzpatrickPartner, New YorkT +1 212 918 [email protected] Jeff Greenbaum
Partner, RomeT +39 06 6758 [email protected]
Today's speakers
Steven McEwanPartner, LondonT +44 20 7296 [email protected]
Charles RixPartner, London; Head of Insurance Industry SectorT +44 20 7296 [email protected]
Christoph KueppersPartner, DusseldorfT +49 (211) 1368 [email protected]
Charles BrastedPartner, LondonT +44 20 7296 [email protected]
Please submit your questions online during today's webinar, or send them by e-mail toany of our contacts, or to our central BrExit questions e-mail address:
| 4Hogan Lovells
• The Brexit process and possible outcomes
• Restructuring options
• Pros and cons of different jurisdictions
• Financial impact of Brexit
• A continental perspective
• Brexit questions
Brexit
Hogan Lovells | 5
• Article 50
– 2 years from notice
– Start gun is in UK's hands – or is it?
• Regulatory position - on-going compliance with existing regulations until Brexit
• High level issues
– EEA market access (passporting)
– Access for EEA firms to the UK insurance market
– Solvency II equivalence
The Brexit process
Hogan Lovells | 6
Regime Passporting Influence overEU legislation
Comment
EEA (Norway Model) Yes Consultation rights– no veto
Retains access to EEA MarketRequires free movement of personsPotentially quickest to implement
Co-operation Agreements(Swiss Model)
Depends on what isnegotiated
No Passporting conditional on free movement ofpersons?
Comprehensive Free TradeAgreement
Depends on what isnegotiated
No Time consuming to negotiatePassporting conditional on free movement ofpersons?
Reliance on WTO rules No No
What might the UK agree?
Hogan Lovells | 7
• Assess impact and identify priorities
• Develop contingency plans
• Engage in lobbying now
Start now to help shape the policy agenda - opportunity to lead change
Lack of UK capacity and experience of negotiation - business needs to fill the gap
Need to influence via multiple routes - Brussels, London and other key capitals
What should you do now?
Hogan Lovells | 8
• What options are available for UK insurers?
– UK insurer and EEA insurer with passporting rights
– EEA insurer with passporting rights with UK branch authorised to conduct insurancebusiness in the UK
– Convert to a Societas Europaea?
• What options are available for EEA insurers?
– Obtain authorisation to conduct insurance business in the UK (either for a branch or anewly established company)
Restructuring options
Hogan Lovells | 9
• Capital impacts (separate companies in EEA and the UK v single EEAcompany with UK branch)
• Is it better to have a separate UK company to mitigate the "double greenlight effect" (ie needing UK regulators and EEA regulators to approvematerial changes to the business)?
• Need to obtain authorisation to conduct insurance business for NewCo(and passporting rights)
• "Brass plaque" often not permitted
• Ability to outsource between the UK and the EEA
• Preliminary steps for restructuring
Issues to consider for restructuring
| 10Hogan Lovells
Main Options for a restructuring of a UK Business
Part VIIBusinessTransfer
Cross BorderMerger
Convert to aSocietas
Europaea
How would a restructuring be achieved?
Only available while UKremains a member of the EU?
May need to rely ongeneral rules on
recognition of courtjudgments
| 11Hogan Lovells
Pros and cons of different jurisdictions
| 11Hogan Lovells
Benefits
Common lawjurisdiction with
similar legal system
Stable economic socialenvironment with a
business minded andpragmatic regulator
Skilled, Englishspeaking workforce
Attractive corporatetax rate and
comprehensive taxtreaty network
Outsourcing back tothe UK is possible
IRELAND
Disadvantages
Possibly laggingbehind in
infrastructureLimited workforce
| 12Hogan Lovells
Benefits
Paris is a leadingfinancial centre
with the ambitionto grow
Outsourcing backto UK is possible
Paris is anattractive place to
live and work
Disadvantages
Labour laws Employment costs
Pros and cons of different jurisdictions
FRANCE
| 13Hogan Lovells
Pros and cons of different jurisdictions
| 13Hogan Lovells
Benefits
Outsourcing toUK is possible
Strongest EUeconomy
Internationallyopen-minded
Similareconomic
views as UK
Lower costlevels
GERMANY
Disadvantages
Sophisticatedcorporate tax
law
Limited officespace
Not asattractive as
London
Data transferrestrictions
| 14Hogan Lovells
Pros and cons of different jurisdictions
| 14Hogan Lovells
Benefits
Located in heart ofEurope, truly
international, multi-cultural
Stable economic socialenvironment with a
business minded andpragmatic regulator
Skilled, multi-lingualworkforce
Favourable tax regimefor highly skilled
workers
Outsourcing back tothe UK is possible
LUXEMBOURG
Disadvantages
Pro-employeelabour laws
Relatively highemployment costs
Limited workforceLagging behind in
infrastructure
Hogan Lovells | 15
• Impact on existing business operations
• Impact on value of investments
• Recalculation of technical provisions and capital requirement
• Will termination rights or collateral provisions be triggered?
• Impact on conditionality (eg MAC clauses)
• Anticipating Brexit in new contracts – retaining flexibility
Impact on existing business operations
Hogan Lovells | 16
• UK company converts to PLC (if not already)
• Establish subsidiary in potential target jurisdictions in the EEA (if not already established)
– This is needed because SE solution depends on having had a subsidiary there for 2 years
– Does not have to be regulated
– Subsidiaries in more than one jurisdiction can be established to retain flexibility
• UK company converts to SE
Wait … then if passporting will no longer be permitted:
• UK company lines up authorisation in target jurisdiction in the EEA (eg Germany), and authorisation forbranch in the UK
• UK company moves head office to Germany – it is now a German company
• German authorisation for the company (allowing passporting throughout EEA) and UK authorisation forthe UK branch come into effect
The SE solution – moving the legal entity
Solvency II balance sheet of an insurer
Assets Technicalprovisions
Otherliabilities
SolvencyCapitalRequire-ment (SCR)
Risk margin
Best estimate
Capital(ownfunds)
Free capital
Hogan Lovells | 18
• Group supervision and group solvency waivers – see below
• Transitional measures
• Matching adjustment / Volatility adjustment
• Ancillary own funds
• Capital add-on to SCR in "exceptional circumstances"
• Approval of persons carrying on key functions
• Internal model
• Prudent person principle / anti-contagion rule
• Approach to enforcement
If you retain a branch in the UK and passporting is not permitted then the UK regulator maynevertheless accept the judgements of your new regulator, but it will not be required to do so
If you move jurisdiction – judgements of your new regulator
What if you retain your UK company as a subsidiary ?
19
Group HoldCo
Insurer 1(UK)
Insurer 3(Bermuda)
EEA HoldCo
Insurer 2(France)
Ultimate insuranceparent undertaking
EEA parentundertaking
Insurer 4(Cayman)
Reinsurance protection
Hogan Lovells | 20
• Group supervision
– If the UK regulator is currently the group supervisor, will that be permitted tocontinue ?
• Group solvency
– Will the UK solo capital calculation be accepted ?
– If the UK regulator is currently the group supervisor, will an EEA regulator have toapprove the group internal model ?
– Will the new group supervisor take the same approach regarding group waivers ?
• Reinsurance
– Will the UK insurer be an eligible reinsurer ?
– If not, consider rating and collateral
Three equivalences
21
Lloyd’s
FAL
Member(s)
Syndicate Premiums TrustFunds
Policyholder
Premiums
Claims
Deposit
Fundingof losses
US TrustFunds (CRTF
and SLTF)
Quarterlyfunding
ManagingAgent
ManagingAgent's
Trustees CentralFund
ManagingAgent's Dollar
Trustees
PTF DTF
Coverholder
Member's Agent
What about Lloyd's ?
Hogan Lovells | 22
• Passporting
– Lloyd's already has permissions in multiple non-EEA countries
– If passporting for UK insurers is no longer permitted will probably obtainpermissions in each EEA country
• Capital implications
– Will an EEA regulator have to approve the Lloyd's internal model ?
– And therefore Lloyd's syndicate models ?
• Implications for Lloyd's managing agents
– Currently passport into the EEA as insurance intermediaries under the EUInsurance Mediation Directive
– If passporting for UK insurance intermediaries is no longer permitted thenthey will have to arrange their own new permissions in EEA countries
Key issues for Lloyd's
The Continental Perspective
• Impact on existing business operations
• Restructuring prior to actual Brexit
• Issues arising from actual Brexit
- Need to obtain authorisation in the UK
- Separate UK company or branch?
- Third Country regime, including equivalence requirements for reinsurers
- Services and outsourcing agreements (e.g. data privacy, IP)
23
Hogan Lovells | 24
• Does the referendum result have to be followed? Does Article 50 have tobe triggered?
• Can negotiations start before Article 50 has been triggered?
• Will UK citizens or the UK Parliament have the opportunity to vote on aBrexit proposal?
• Could the Article 50 notice be withdrawn?
Brexit questions
| 25Hogan Lovells
• Thinking Ahead: Hogan Lovells led early thinking on Brexit and has adedicated Constitutional Change Taskforce
• Sector and Product Understanding: Insurance industry specialists, withregulatory insights and relationships
• International Trade Agreements: We have a market-leadinginternational trade practice led by Lourdes Catrain in Brussels and BethPeters in Washington, DC
• Integrated European Teams and Global Network: many responses toBrexit will involve reviewing operational structures in place across the UK/EUborder
• Engaging to Succeed: Actively engaging in shaping the negotiations, we arethe only law firm top-ranked for both Administrative & Public Law and forParliamentary & Public Affairs by Chambers UK 2016
Why Hogan Lovells?
Any questions ?
Steven McEwanPartner, LondonT +44 20 7296 [email protected]
Charles RixPartner, London; Head of Insurance Industry SectorT +44 20 7296 [email protected]
Christoph KueppersPartner, DusseldorfT +49 (211) 1368 [email protected]
Charles BrastedPartner, LondonT +44 20 7296 [email protected]
Please submit your questions online during today's webinar, or send them by e-mail toany of our contacts, or to our central BrExit questions e-mail address:
July 2016
Impact of Brexit on UK andEuropean insurance businesses
