The top French insurance watchdog has rejected the EU’s recommendation to up uphold life insurance policies signed in the UK, but where the policy holder has moved to another member state.
In January 2019, the European Insurance and Occupational Pensions Authority (EIOPA) issued nine recommendations for how the insurance sectors should adjust in case of the UK withdrawing form the EU without a deal.
The stated goal of these recommendations was to minimise the risk for policy holders suffering due to Brexit.
The nine recommendations included orderly run-off, portfolio transfer, change in the habitual residence or establishment of the policyholder, authorisation of third country branches, lapse of authorisation, cooperation between national competent authorities, communication to policyholders and beneficiaries, and distribution activities.
Now the national competent authorities in the 27 member states have submitted their answers to the nine recommendations.
While most of the member states stated that they were already complying with or intended to comply with the recommendations, France refused to comply with the recommendation of change in the habitual residence or establishment of the policyholder.
Essentially, this recommendation would ensure that – in case a policy holder who had signed a contract in Britain and then moved to another member state – competent authorities should take into account in the supervisory review if the insurance contract was signed in Britain and if it did not provide cross-border services for the other member states.
Autorité de Contrôle Prudentiel et de Résolution answered “This recommendation, whose drafting lacks precision, gives rise to several readings: on the strict reading of this recommendation, it appears that no details are provided on the nature of the control carried out by those same competent authorities or even on the accountability of that control.
“According to a broader reading, taking into account all the interpretations that such drafting might induce, the place of subscription of the contract should be retained to determine the state of the risk. However, according to French Insurance code and the French case law, the change in the habitual residence of the policyholder after the subscription may be regarded by the Judge as a change in the location of the risk.”
It added that this could lead to two risk for UK insurers. Firstly, that “concerning life insurance, the French judge may consider that the UK insurers will no longer be able to receive premiums. This principle can be deduced from a French case law for free premiums. It still remains a doubt for premiums scheduled by the contract.”
Secondly, “concerning non-life insurance, the French judge may consider that the UK insurers are not allowed to maintain there (sic) contracts, even if they are note expired. Moreover, since the change of habitual residence was a general case, the Brexit order was not intended to challenge the law applicable to third-country nationals or to introduce any unequal treatment by granting a specific regime to policyholders established in the UK before Brexit.”
In related news, following the decision to extend the period before Brexit until January, both the European Securities and Markets Authority (ESMA) and Financial Conduct Authority (FCA) have updated their recommendations in regards to how financial services should behave in the period before the final divorce date.
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