Lloyd’s of London has promised to “find a way” to honour policies taken out by clients from the 27 remaining EU states, even if they cease to be technically enforceable in the event of a no-deal Brexit next March.
“It is our business to provide certainty to policyholders,” Lloyd’s chairman Bruce Carnegie-Brown told the Financial Times. “That question of certainty has arisen in conversations with brokers and clients. We will find a way. In the next two or three months it would have led to a decline in business if we had not come out and made this pledge.”
In an effort to calm the nerves of brokers and clients and reduce any potential damage to business, the London insurance market said it would “direct [its] underwriters or take such other steps” to ensure policies remained valid.
If Britain leaves the EU without a deal, UK insurers would be technically barred from paying valid claims to EU27 policyholders. For this reason, most big insurers made clear by the summer that they had already transferred EU27 client business to subsidiaries on the continent. Lloyd’s, however, had no such subsidiary and the new entity it is establishing in Brussels will only be fully authorised and open for business from January next year.
Policies moved to the Brussels subsidiary — using what is called a Part VII transfer — would be compliant but Lloyd’s must sift through millions of policies dating back to 1993 to establish which might need to be transferred. Transferring these policies would then take another two years, Lloyd’s said.
However, Mr Carnegie-Brown said he had reassuring “informal conversations” with regulators from across the EU. “Regulators have indicated that provided we have started the Part VII exercise, we should be fine,” he said.
Lloyd’s said its proposals for the transfer of business were “in the post” to the UK High Court.
The issue of insurance policy contract continuity is one of several systemically sensitive topics raised by Brexit planners.
A similar problem affecting derivatives contracts was highlighted this week by the Bank of England. The BoE said £41tn of derivatives contracts that mature after Brexit could be rendered invalid unless a deal is agreed.
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