The core of the planned new regulation is that the German Insurance Supervisory Authority (BaFin) may order that for a transitional period of no more than 21 months (beginning from Brexit) only for the purposes of settlement of insurance contracts the provisions governing passporting into Germany apply accordingly to those UK-insurers which have been conducting insurance business in Germany (either on FoS or FoE basis) at date of Brexit. This shall only apply in the event of a hard Brexit (without any agreement within the meaning of Article 50 para. 2 sentence 2 Treaty on European Union).
For this purpose German legislator intends to insert a new sect. 66a into the German Insurance Supervisory Act (“Versicherungsaufsichtsgesetz”, VAG) – see the draft bill of 4 January 2019, BR-Ds. 4/19 linked here (available in German language only).
German legislator further explains that it expects UK insurers to (a) cancel and to fully “settle” the insurance contracts within this period, or if this is not possible to (b) continue the contracts by either obtaining a German license to conduct insurance business via a branch in Germany until the extension period has expired or by obtaining the necessary approval for a transfer of portfolio to an insurance undertaking which has a German or EU/EEA license (see the preamble to the new sect. 66a VAG, BR-Ds. 4/19 of 4 January). Thus, the transitional period is intended to be a settlement period – UK insurers will not be allowed to actively underwrite any new risk.
The intended provisions shall apply to insurance and reinsurance, including Lloyd’s business.
The German draft bill, however, does not contain any special provisions for insurance intermediaries. At present, there is no publicly known legislative attempt to make comparable special provisions for insurance intermediaries as well.
As a consequence, even if UK insurers are allowed to settle already existing insurance contracts within the 21 month-period, they will probably be obliged to use their own employees for the administration and settlement of these contracts or can be asked to cooperate with insurance intermediaries properly licensed and authorized in Germany to do so. Taking into account the current legislative initiative, they will probably be not allowed to continue to cooperate with UK insurance intermediaries who after Brexit will no longer be allowed to rely on FoE/FoS.
As said before, the legislative procedure is not completed. The draft bill may be subject to changes during further procedures. We will communicate updates on this newsletter service.
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