With Article 50 being triggered, EY comments on the impact of Brexit on the insurance and life and pensions industries and what needs to happen now

29 March 2017

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Benedict Reid, Executive Director, Insurance, EY, comments:

Contingency planning

“Now Article 50 has been triggered, it’s imperative that insurers, reinsurers and brokers have contingency plans in place in the event that a trade deal with the EU isn’t finalised at the end of the two year period. For many UK-based insurers and brokers, contingency plans will likely take the form of creating a subsidiary in the EU. While firms won’t be looking to move more people or operations than they have to, there is an 18-month minimum timeframe to develop and implement a contingency option. We expect organisations will now focus on this as a matter of urgency. Crucially this is a strategic, commercial and operational matter for firms, not just a tax and regulatory issue.”


“Brexit is an opportunity for the insurance industry to reassess growth opportunities in Europe and elsewhere. The cost and complexity of establishing a subsidiary gives insurers and reinsurers an incentive and opportunity to grow their businesses in Europe. Some regulators will also expect to see how they intend to develop in this region, as part of the application process.”

Simon Woods, Partner, Insurance, EY, comments:

Insurance subsidiaries

“New insurance subsidiaries will require operational substance to gain regulatory approval. Insurers and brokers will need to design and deliver a target operating model covering people, process, technology, governance and finance.

“Each jurisdiction is likely to require capital to be retained locally in order to meet solvency requirements. Furthermore, all jurisdictions will take legal entity governance seriously. They will require a minimum number of people - including senior staff - to be dedicated to the subsidiary, with the infrastructure to allow them to operate the organisation and serve their clients and trading partners. All of this must be considered at an early stage, to support the application process. Given the scale of this change, it’s likely to be challenging for many insurers to deliver in the timescales available.”

Portfolio transfers

“Insurers also need to consider whether they need to transfer their back-book into the new company. This may be required for a number of reasons, including ongoing permissions to continue servicing of insurance business, minimising frictional costs and ensuring the new company is profitable from day one. 

“A portfolio transfer adds additional complexity, cost and time to the process.  The main concerns are the capacity of the courts, regulators and independent experts to process the anticipated number of transactions, as well as the costs of policyholder communication, especially for personal lines business in life and non-life business.”

Passporting issue

“Inbound passport holders need confidence from UK regulators that they can continue to operate post Brexit. Unless continued access is negotiated, the ability to passport between the UK and other EEA states will be lost. Insurance firms currently holding an inbound branch passport would therefore have to apply to the PRA for authorisation in order to continue trading in the UK. Obtaining authorisation is a substantial process, and we expect it would have to be largely completed before the outcome of Brexit negotiations is known.

“By providing early clarity to insurers and seeking to avoid cost and inefficiency in the authorisation process, UK authorities have the opportunity to minimise disruption in the domestic and international insurance markets due to Brexit. The same authorities can also develop the reputation of the UK, and the London insurance market in particular, as a business-friendly domain.”

Jason Whyte, Director, Life and Pensions, EY, comments:

“For Life and Pension companies, Brexit is likely to have less of an impact on their core operations, which tend to be in domestic subsidiaries where they operate. The exception is where a company has been selling products cross-border under passporting legislation. This includes business sold from branches of UK companies, as well as business sold back into the UK, e.g. offshore bonds. With passporting looking unlikely to be an option post-Brexit, companies may need to set-up a new authorised entity in an alternative location to maintain access to markets. As with other new subsidiaries, these will take time to set up and require capital and operational substance, making it a strategic question of whether to invest further in these smaller but profitable businesses or re-evaluate the portfolio as a whole, including considering M&A and run-off options.”