Brexit's Impact On The Insurance Industry

Following the UK's historic advisory vote to leave the EU, key questions must be answered before any real change occurs. These include: Must the government implement the advisory vote, and if so, how?

Will the UK really leave the EU? Will Scotland and Northern Ireland (both of which voted to remain in the EU) have their own referendums to leave the UK—and will they be granted EU status if they do?

While the answers to these questions will have broad implications for businesses across industries, this article addresses insurance companies, many of which are trying to determine whether to leave the UK or remain until the UK's plans become clearer. At this early stage, insurance companies, regardless of their location or the type of coverage they write (e.g., property and casualty, life, or accident and health), lack the information needed to make decisions. Regardless, they should start weighing potential scenarios. We suggest they evaluate considerations including the following:

Domicile for European Business

Should insurance companies immediately seek another EU country to domicile their European business or take a wait-and-see approach? U.S. companies that use London as their European base may find a move necessary to maintain unfettered access to the EU. As English-speaking countries, Scotland and Ireland (including Northern Ireland) may become attractive options. Additionally, these countries may seek to enact tax and related legislation to entice companies from London. Although some recent EU tax rulings may make this difficult.

Solvency II

The Solvency II Directive ("Solvency II") codifies and harmonizes EU insurance regulation and primarily concerns the amount of capital EU insurance companies must hold to reduce the risk of insolvency. Under Solvency II, the solvency regimes of countries outside the EU are assessed to determine whether they are "equivalent" to those of the EU. If the UK leaves the EU, it would, absent a contrary agreement, no longer be an equivalent country. This would put it on similar footing with the United States (though not an equivalent nation, certain aspects of equivalency have been offered to the United States by the regulatory authority responsible for Solvency II, the European Insurance and Occupational Pensions Authority).

Since the International Association of Insurance Supervisors has chosen Solvency II as a baseline for development of a global safety-and-soundness standard, the UK would be subject to a...