Brexit Update from Lockton Companies LLP

April 2018

At Lockton we are committed to providing clients with as much clarity as possible with regard to post-Brexit coverage, both in terms of policy compliance and claims response.

This update contains key information on recent European Commission developments regarding your annual renewal cycle, as well as insurer responses to date and the Lockton view.

The European commission’s notice of withdrawal of the United Kingdom and EU rules in the field of insurance/reinsurance:

The European Commission has given notice to insurance stakeholders reinforcing that post-midnight March 30th, 2019, the UK will become a ‘third country’. This sets out the repercussions and encourages those affected to address them expediently rather than wait for transition or future trading arrangements. This is consistent with the Lockton position, which has always been to place our clients first by planning for the hardest Brexit and preparing accordingly.

Annual Renewal cycles:

Given the nature of annually renewable insurance placements, it is now almost inevitable that coverage will be bound for policy periods which will bridge the Brexit date of March 30th 2019. Combined with the change in status of the UK to a ‘third country’, and the lack of any legal transition agreement, this could mean that those polices end up outside the EU’s regulatory compliance post March 30th 2019.

Insurers’ response:

It is clearly in the interest of insurers that when offering renewals bridging the March 30th deadline, that the policy they underwrite is compliant and able to meet the coverage and claims paying requirements post March 2019. The challenge that individual insurers and their

insurance framework face, is that there is unlikely to be a one-size-fits-all response to this challenge. As part of the Lockton Brexit planning, we have canvassed the responses of approximately 30 insurers. Many of these insurers are advanced in the planning for how they continue to provide compliant post Brexit coverage. However, due to their differing ownership structures, current domiciles and other challenges, each insurer is addressing this in different ways.

All of the insurers who have shared their plans with us are taking the same approach as Lockton in planning for the hardest outcome. However, they then broadly fall into two categories: those who are planning transition arrangements to deal with polices which bridge the March 30th 2019 Brexit; and those who are implementing more permanent arrangements for polices starting after 2019 or renewing in the 2019 calendar year.

Examples of positions insurers are looking to adopt:

Brexit continuity clause: some insurers will be inserting a cancel and rewrite provision into their policies which, subject to certain conditions, allows them to cancel the original contract for any European exposures and transfer it to another member of their group within the EU27.

Part VII transfers: this is a legal mechanism which will allow insurers to transfer a contract or part of a contract where the exposure falls within an EU27 country to another member within their group without the requirement for a cancel and rewrite provision.

Brexit Update from Lockton Companies LLP

Issuing coverage from existing EU subsidiary: insurers with an existing network of offices throughout Europe may issue original polices in an appropriate domicile without the need for either the cancel and rewrite provision or a part VII transfer. Post-Brexit: a number of insurers will be providing their clients with two stamps and two polices on a single risk in order to ensure that both EU and non-EU coverage is compliant.

The common theme is that although insurers are adopting differing strategies to deal with the challenge their common aim is to ensure the compliant continuation of coverage post March 2019. Lockton Our response to Brexit is focused on providing clients with the seamless continuation of our high level of service, unaffected by regulatory or market driven changes. Consistent with this approach Lockton believe insurers should not be isolated in managing the challenge to their business. We are therefore assisting insurers to solve the issues they face and help them deliver the best possible result for our clients. Our Brexit team are meeting with insurers regularly to fully understand their contingency plans and stress test those plans against our current client base. In order to ensure we can continue to trade across Europe post-Brexit we are testing options for both current and new subsidiaries and ventures in the EU. As soon as this is complete we will inform all stakeholders of our plans.

Next steps

As the post-Brexit situation develops we will continue to monitor the actions that insurers and other stakeholders are taking, and advise you on any direct impact. We will also continue to lobby individually or as part of trade groups in the interest of protecting the efficiency and efficacy of clients’ risk transfer arrangements.

Lockton Companies LLPAuthorised and regulated by the Financial Conduct Authority. A Lloyd’s brokerRegistered in England & Wales at The St Botolph Building, 138 Houndsditch, London, EC3A 7AGCompany No. OC353198