London-based insurers applying for licenses to operate in the European Union after Brexit will be scrutinized for any attempts to game the system, the bloc’s insurance watchdog said.
Insurance specialists say some insurers have been shopping around for jurisdictions which are less strict when it comes to “reinsuring” or outsourcing the insurance risk back to London or another non-EU jurisdiction.
More than 20 insurance firms with operations in Britain, including Lloyd’s of London, RSA and Chubb, have so far announced plans to open EU hubs to maintain links with customers there after the UK leaves in March 2019.
Gabriel Bernardino, who chairs the European Insurance and Occupational Pensions Authority (EIOPA), told the Reuters Financial Regulation Summit that while many firms have announced plans, licenses have not yet been issued for many of them.
EIOPA, which writes rules for insurers across the EU, published Brexit licensing guidelines or “opinion” in July aimed at stopping national regulators from undercutting each other to attract insurers from Britain.
“EIOPA is going to monitor how national authorities adhere to the guidance we have given by our Opinion,” Bernardino said, adding that it had already identified differing practices during the preparatory talks between regulators and firms.
EIOPA said that in 2016 some 80 UK-based insurance firms were operating under EU rules allowing them to provide life and non-life services across the bloc, with more expected to announce plans for EU hubs supervised by local regulators.
“We expect to see a number of firms indicating their preferences,” Bernardino said.
Lloyd’s of London, the world’s largest specialist insurance market, has said it will hire up to 20 people for its EU subsidiary in Brussels, while other insurers told Reuters in a recent survey they would hire 10 or less for their EU hubs.
EIOPA guidance says that at least 10 percent of insurance business should be kept within the new EU jurisdiction to avoid “fronting” or setting up a letter-box firm where governance and risk management functions remain elsewhere.
“We see the 10 percent reference of business being retained as a good referential,” Bernardino said.
“What matters is the formal authorisation process. We are looking at each case, each situation and are in dialog with the national authorities,” he added.
EIOPA has no formal powers to stop a national regulator issuing a license unless it can show that EU insurance law is being broken, but Bernardino does not expect it to come to that.
“We believe we will not arrive at such a situation.”
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