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In the short term, insurance companies in the UK and EU will be able to continue underwriting risks in the European Economic Area (EEA) during the 11-month Brexit transition phase using current passporting rights, said the ratings agency.
AM Best added that while the transition period reduces the immediate impact of Brexit on UK insurers, they are likely to be negatively affected by the impact on the UK economy as a whole.
Catherine Thomas, senior director of analytics at AM Best, noted that most major commercial UK insurers, including the Lloyd’s market, already have arrangements in place to continue writing European risks after the transition period expires. The UK’s temporary permission regime will allow EEA insurers to continue writing UK risks for up to three years after the UK leaves the EU.
With the UK expected to be treated the same as any third country after the transition period ends, AM Best said the European Commission is yet to decide if the UK’s regulatory and prudential regulations are deemed equivalent to the EU’s.
AM Best said the UK is well placed to achieve Solvency II equivalence, but added that this does not preclude the UK from diverging from the EU on solvency and regulatory requirements.
Equivalence would mean UK firms are treated by EEA supervisors in the same way as EEA companies. AM Best said this would be particularly important for London market players, should a future trade agreement not provide adequate EU market access.
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