On the 18th May 2018, the EIOPA issued an Opinion on the solvency position of insurers and reinsurers in the light of Brexit.
The withdrawal of the UK from the EU might have an impact on the solvency position of insurers and reinsurers.Technical provisions, own funds, and capital requirements of insurance and reinsurance undertakings established in the EU (other than the UK) can change when the UK becomes a third country (non-EU), for the purposes of applying the Solvency II framework. Solvency II and other financial regulations distinguish between activities inside and outside the EU.
This Opinion underlines the importance for national supervisory authorities to ensure that all risks to the solvency position of insurers and reinsurers under their supervision arising from the UK leaving the EU and thus becoming a third country are properly identified, measured, monitored, managed and reported, and that such risks are considered in the (re)insurers’ own risk and solvency assessment process.
In the context of the above, the Opinion lays down 14 areas where the determination of the solvency position of (re)insurers will change. This said, not all of the changes may be relevant for each (re)insurance undertaking. The areas include:
1. The risk-mitigating impact of derivatives;
2. The recognition of ratings from UK rating agencies;
3. The impact on the technical provisions for insurance contracts concluded in the UK by way of freedom of establishment and freedom to provide services;
4. The scope of group supervision after Brexit;
5. The regulatory treatment of credit risk exposures situated in the UK.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Edmond Zammit Laferla & Ms. Romina Bonnici.