In light of the UK withdrawal from the EU and in the absence of an agreement that allows insurers and brokers to continue to service clients and risks located in EU countries, UK insurance firms shall no longer have passporting rights to European markets including Cyprus.
Passporting rights allow firms registered in the EEA to do business in other EEA states without additional authorisation being given from each country. Without passporting rights, UK intermediaries may not be permitted to place certain European risks with insurers. Many insurers have been restructuring their business, planning the relocation or opening of new branches in EU27 member locations including Cyprus. This will allow them to continue to operate within the EU27 following Brexit as well as in other jurisdictions where the EU has bilateral trade or services agreements.
The European Insurance and Occupational Pensions Authority (“EIOPA”) has published a number of recommendations intended to facilitate an orderly transition of UK insurance business in EU states post Brexit (the “Recommendations”). The Recommendations set out a number of principles that will apply to in respect of the conduct of UK insurance firms which essentially prohibit new business (including renewals) but allows ongoing administration of insurance contracts which were incepted before 31 December 2020 until such time they expire or are terminated on the basis of Recommendation 6 (which effectively states that the location of the risk remains in the UK (on the assumption that the risk was first underwritten by a UK insurance entity).
In response to EIOPA Recommendations the Insurance Companies Control Office (the “Cyprus Insurances Regulator”) has indicated that it intends to follow and apply all the Recommendations and that they will be issuing relevant orders for business written in Cyprus by UK companies with respect to each Recommendations, before the UK withdrawal date.
Whilst, the Cyprus Regulator has yet to issue relevant orders in connection to the Recommendations, Law 19(I)/2020 was published and is effective on the 6th March 2020. The said law, by amending national relevant law, aims to regulate the services offered by British insurance companies in Cyprus and essentially, the run-off of UK insurance and non-insurance business which was sold in Cyprus to customers before 31st December 2020. The new legislation grants to insurance companies and insurance agents offering insurance products from the United Kingdom to the Republic of Cyprus a two-year grace period by which they may continue managing the affected portfolios as follows:
- Insurance products already in issued shall continue to have legal effect without requiring any amendment increasing the overall cost,
- British Insurance Companies in Cyprus can settle any claims arising during the grace period
- British Insurance Companies in Cyprus can continue to collect premiums settle any undertaken liabilities in a business as usual way.
For the affected insurance companies to continue offering services after the 2-year grace period a relevant license from the Cyprus Insurances Regulator must be obtained.
It is clear from the above that, UK intermediaries and entities which intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal are established and registered in the EU27 in line with the relevant provisions of the IDD. Recommendation 9 requires that intermediaries, which are legal persons, demonstrate adequate corporate substance, proportionate to the nature, scale and complexity of their business. Intermediaries should not display the characteristics of an empty shell.
Our firm provides legal advice and services with respect to the re-domiciliation or new formation of a Cyprus Intermediary (broker, agent etc.) pursuant to the provisions of applicable Cyprus laws which essentially adhere to and adopt the provisions of Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (the “IDD”).
Our firm also advises with respect to Cyprus law matters that may arise with respect to the business of a UK firm including in the context of a UK firm executing an insurance business transfer to an EU group entity to ensure continuity of service and to eliminate any potential detriment to those customers, i.e. transferring customers to whom policies were sold under their freedom of services passporting permissions. Such transfer can resolve the issue of having EEA domiciled customers (whose policies were sold under the freedom of services passporting permissions) by transferring them to EU subsidiaries, however, UK insurers may still have customers who have been sold a product or contract in the UK, but who relocate to an EEA country. This will continue to occur post Brexit and it is expected that the Cyprus Insurances Regulator will also address this issue in due course.