On 29 March 2019, Britain will be formally leaving the EU. It has been announced that there will be a transition period until 31 December 2020, but without knowing the outcome captive owners should be prepared and plan for a range of outcomes, including losing Freedom of Services access to the UK from Europe.
Whilst we will not know the terms of the deal until it is reached (or if it is reached) companies will need to be prepared for a range of outcomes. Insurance companies have been preparing for this with ‘Brexit clauses’ and opening subsidiaries around Europe (such as Lloyd’s new office in Brussels). For captives, outside of business risks such as currency fluctuations and investment risks (which should be closely monitored via the captive’s policy to ensure solvency requirements and adequate returns), the crucial issue will be changes to passporting rights – the ability to write insurance directly in and out of the UK and Europe.
The government’s Brexit whitepaper released in the summer of 2017 specified that the UK will leave the EU and its Single Market, which removes the ability to move goods and services from the UK to Europe and vice versa. However, the paper highlights a reluctance to rely on existing arrangements, and suggests new arrangements could be negotiated before March 2019.
Captives in Europe: A guide
Writing from Europe to Europe
This will be unchanged by Brexit and will be able to continue.
Brexit will not affect those non-admitted insurers outside the EEA already operating on a non-admitted basis.
Writing from Europe to UK
Currently UK and EU capitalised and regulated entities can underwrite risks and issue policies into the other territories. Post Brexit they may not have permissions to underwrite the entire risk, only the EU element.
For any captive participating in UK business from Europe, the only way to absolutely guarantee that your policy will be Brexit proof is to place it with a carrier who is capitalised and regulated in the UK.
For captives, a UK based fronter will be needed to issue insurance policies and maintain compliance. Where a lot of captives already have with fronting arrangements for their global business or from their offshore captives, the additional cost for issuing into the UK should be factored into policy renewals. With the additional costs insurers are incurring preparing for Brexit themselves, captive owners will need to be aware that the cost of fronting, or other insurance, could increase accordingly as insurers pass this along this cost.
Special case: captives in Guernsey and Isle of Man
Guernsey and Isle of Man are British Crown Dependencies; as self-governing parts of the UK they have always set their own financial laws. Having elected to not be a part of the EU, Guernsey and Isle of Man have deals in place with Europe and UK, thus there is no reason presently why these will change as a result of Brexit.
Special case: captives in Gibraltar
Gibraltar is a self-governing UK overseas territory. It is part of the EU, as it is distinct from the UK. However, it is part of the UK too, so ability to write into the UK will be unaffected, as it is arranged under a separate treaty.
The uncertainty of Brexit has proved to be a challenge for insurance companies all around Europe, and captives are no exception to this. If your captive writes UK risks, speak to your captive manager to ensure there is sufficient time to consider your options. Either the captive could use a fronting company, or change the lines of business it is currently writing. Considering the cost:benefit of each these options will be worthwhile to get the most out of your captive. Whilst they could be unaffected and continue with business as usual, preparations should be underway to make sure your captive is able to still work for your business.
If you have any questions, please contact Alexandra Gedge or Claire Lebecq, both of whom would be pleased to speak to you.