The insurance industry has reacted gloomily to UK Prime Minister Theresa May's draft Brexit deal – amid ministerial resignations and a sharp drop in the pound.
The draft Brexit agreement was published last night after a long and difficult cabinet meeting.
In terms of financial services, the agreement sets out the framework for the future relationship between the EU and the UK, pledging commitments to “preserving financial stability, market integrity, investor protection and fair competition, while respecting the [UK’s and the EU’s] regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest.
The declaration adds that equivalence assessments by both the UK and EU will start as soon as possible after the UK’s withdrawal from the EU, with the aim of concluding the assessments before the end of June 2020.
It also notes there will be close and structured cooperation on regulatory and supervisory matters.
Sterling has nose-dived this morning after Brexit secretary Dominic Raab and work and pensions secretary Esther McVey resigned over the draft Brexit deal, plunging the government into a new crisis.
At the time of publication (1300 GMT), the pound has fallen more than 1% against the dollar to $1.2798 and dropped more than 1% against the euro to €1.1313.
Insurance industry reaction
Huw Evans, director general of the Association of British Insurers, warned the crucial longer-term test is whether the UK’s future relationship with the EU avoids the British insurance and long-term savings sector “becoming a rule-taker”.
Evans said: “The publications today begin a process of establishing what that relationship is but it is far too early to judge whether we will be able to avoid that fate.”
He added that is vital for the industry’s customers to have an orderly withdrawal process and transition period and “any progress towards that is welcome”.
At law firm Norton Rose Fulbright, insurance partner Bob Haken described the focus on equivalence as “unfortunate for the insurance industry” since, unlike some other financial services, equivalence under Solvency II does not grant market access for insurance business (reinsurance is treated differently under Article 172 of the directive where equivalence does come with market access).
“At present therefore it seems unlikely that the withdrawal agreement or political declaration will preserve passporting rights for UK insurers.”
For reinsurance, Haken said there is “a glimmer of hope” in that there is a commitment to reaching equivalence decisions as soon as possible after 29 March 2019, and endeavour to conclude those assessments by 30 June 2020.
However, Haken said neither document recognises the important issue of contract continuity following the expiry of the transitional period.
Hagen said this means the contingency plans many hoped would be unnecessary will have to be deployed by the end of 2020.
