A call for calm and a ‘business as usual’ approach has been issued for life companies across Europe by the Association of International Life Offices, despite the uncertainty surrounding the UK’s decision to leave the European Union.
In its latest issue of the Association of International Life Office’s AILO Advisory newsletter to its members, the association stated that due to a “large knowledge gap” the best option for companies rather than worrying due to a “fear of the unknown”
“The only thing anyone knows about the impact of Brexit is – we know nothing,” the AILO said. “Listening to the Steptoe sponsored webinar the other day, whilst excellent in covering the known issues of the EU passport, Solvency II, the Lisbon Treaty et al, we were still left with a large knowledge gap.
“Whilst Greenland left in 1985 before the modern EU was created, no country has ever exited the 28 member states and clearly, other than Article 50 and its relatively short description of the method of exiting, the main impact is the worry stemming from the fear of the unknown.”
For AILO members transacting cross-border business with EU member states other than the UK, or those members transacting international business around the world, it believes that there appears to be no impact at all.
However, members who will be affected are those who operate from the UK and those who sell into the UK.
“The bigger picture is that the UK is a huge insurance and reinsurance centre; just think of Lloyds,” the AILO stated. “It transacts more insurance business internationally with the rest of the world than with continental Europe.
“That said, we have signed up to Solvency II and this is unlikely to change. Why should it? The PRA and FCA have led the charge in implementing Solvency II and the UK is arguably ahead of most EU countries.
“What will go is the single European passport to operate under Freedom of Establishment or Freedom of Services, so unless some form of reciprocal arrangement can be negotiated, the so-called Single Market will disappear.”
The newsletter pointed that Brexit also affects UK based distributors, fund groups and other financial operators, whether transacting domestic or foreign business.
The AILO also questions whether the Isle of Man members continue to operate and will this lead to a resurgence in the fortunes of the Crown Dependencies for life insurers?
“Other issues will be travel and health insurance for UK citizens in Europe and vice versa,” the AILO states. “Policy conditions may require a review to ensure that there are no unintended consequences of Brexit
“There seems to be some concerns regarding QROPS, but as that business is UK centric, and it’s unlikely that the liability to taxation locally will be an issue, we will have to wait to see what develops,” its statement read.
The AILO said that the requirement for a legal review of all EU directives and regulations which have effect in UK laws – and so affecting the whole of the UK, including Northern Ireland and Scotland will be a “massive task”.
“And it’s anyone’s guess where financial services, and insurance in particular, will be scheduled (although banking is bound to have a priority),” it stated.
“Repealing the European Communities Act 1972, although mooted, would not seem to be a possible option as that would abolish application of all directives and regulations with nothing in their place,” it warned.
It summarised by pointing that the UK remains a full member state, for possibly a minimum of two years until it exits and any official negotiations cannot start until the UK is ex-EU.
‘Whole new world’
“Bartering with the 27 member states currently appears to be off limits,” the statement read. “Clearly the UK has lost its commissioner and, consequently, has lost any influence. It’s a whole new world for some.
“AILO can only monitor developments with the slant of the cross-border life industry at the forefront of our minds.”