France publishes rules for managing run-off of insurance and reinsurance contracts impacted by Brexit
Market Insight12 January 202112 January 2021
UK & Europe
On 16 December, France published measures applying to insurance companies established in the UK which have in place policies or reinsurance agreements covering risks located in France.
What is the scope?
The measures relate to both insurance policies and reinsurance agreements commenced before the date on which the UK left the European Union (EU) i.e. 1st January 2021]. While pure reinsurers are not affected, insurer reinsuring cedants located in France are within the scope of such measures.
Do the measures provide for any sort of temporary regime allowing UK insurers to write new business in France?
No, France has not implemented any measures or options allowing UK insurers to conduct insurance business in France following the departure of the UK from the EU.
What do these measures provide?
There are essentially two obligations for UK insurers which have policies in force covering French risks or reinsurance agreements covering French cedants as of 1st January 2021:
A new article L. 310-2-3 in the French Insurance Code prevents in force policies and reinsurance agreements from being renewed or extended. As such, they will end at their term even if there is a contractual provision for automatic renewal. There may also be no mid-term adjustment entailing the obligation by the policyholder or cedant to pay any additional premium to the insurer.
In addition, insurers must inform policyholders and insureds (as well as cedants although this is not clearly spelled out) of their new situation by registered letter with proof of receipt, in accordance with fairly detailed requirements found under article A. 310-1 of the French Insurance Code, within 15 days of the UK leaving the EU. The letter must contain at least the following information:
The reasons which lead the company to no longer be able to conduct insurance business in France, if necessary temporarily if a portfolio transfer to an entity established within the EU is underway. In substance, this requires an introduction explaining why Brexit is impacting the ability of the insurer to continue conducting business in France because of the loss of the EU Passport;
The fact that the company will not renew the contract, will not issue new premiums or accept new payments, except payment of premiums which the policyholder is required to pay under the contract if applicable. The information must also specify, where applicable, the end of the cover period according to the contract;
A mention that the new situation in which the company finds itself does not in any way exempt it from honouring its commitments under the policies or reinsurance agreements;
The name and address of the authorities responsible for supervising the insurance company and the French court that will hear the execution of the contract.
The insurer must also inform the policyholders and insureds of the expiry of the contract by registered letter with proof of receipt, two months before the end of the cover period, and recommend that the policyholder seek a new cover from an insurer authorized to carry out direct insurance operations in France unless the end of the cover period occurs less than three months after the information provided for above.
Who is concerned?
Only insurance companies are concerned, not reinsurers although the measures do create some confusion because of their drafting.
Intra-group reinsurance agreements do fall within the scope of the measures.