German regulator seeks Brexit plans

BaFin, the German financial regulator, has written to UK-based insurers to demand details of how they plan to deal with a hard Brexit.

The letter asks for information about “emergency plans developed to take into account all conceivable exit scenarios,” although it places particular emphasis on a hard Brexit, according to a report in the Financial Times.

It comes amid concerns that insurers will not be able to fulfil their promises to customers after the UK leaves the EU.  A hard Brexit, with no exit agreement between the UK and the EU, could leave the industry in a legal quandary.

Many London-based insurers use the EU’s passporting rights to sell policies — some of which last for decades — in other parts of the trading bloc such as Germany. They range from personal pensions to the kind of complex commercial policies sold in and around Lloyd’s of London. If the passporting rights disappear, the insurers may not be legally allowed to pay out on those policies. Insurance companies say they face a choice of breaking the contract or breaking the law.

BaFin’s letter, which was sent to UK-based insurers that do business in Germany, suggests that the regulator is also concerned. It says that if the insurers lose passporting rights they will “no longer have the right to conduct insurance business in Germany”. It makes clear this includes “the settlement of claims and all other obligations deriving from a policy.” In April, UK regulators contacted insurers asking for similar details about their post-Brexit plans, although companies say BaFin is the first overseas regulator to ask for details.