Regulators to Facilitate European Economic Area (EEA) Insurers Redomiciling Within the EEA

The introduction of the Cross-Border Conversion (the CBC) mechanism under Directive (EU) 2019/2121 (the Mobility Directive) allows limited-liability companies in the European Economic Area (EEA) to redomicile their registered offices to another EEA Member State while retaining their legal personalities. As a result, all the assets and liabilities will be retained by the redomiciled company. For EEA insurers, this has removed the need to undergo the often expensive and cumbersome insurance business transfer process.

Prior to the CBC, the only options for the transformation of corporate entities across the EEA were (i) a cross-border merger (which does not provide for the continuation of legal personality and still requires a separate insurance business transfer) or (ii) the Societas Europaea (SE) or European Company regime. The SE regime requires groups to have subsidiaries/branches in different EEA jurisdictions for a period of time, and in some jurisdictions, an insurance business transfer is still required.

The CBC process is relatively straightforward with the most involved part of the process being the need for the redomiciling EEA insurer to apply for authorization in the destination EEA Member State. Redomiciling EEA insurers with Solvency II compliant operating models should be in a better position to undertake an authorization application than a new entrant. However, there had been a lack of clarity as to how EEA regulators would view the authorization process and the level of engagement between the relevant EEA regulators.

Helpfully, the European Insurance and Pensions Authority published a supplemental annex (the Annex) to its Decision of June 10, 2021 on the collaboration of the insurance supervisory authorities of EEA Member States (the Decision) that supports implementation of the Mobility Directive by setting out a framework for effective collaboration among EEA regulators. The aim of the Annex is to ensure that the redomiciling insurer can operate effectively in the destination Member State while maintaining regulatory compliance and business continuity.

Throughout the transfer process, EEA regulators are encouraged to adopt a cooperative and coordinated approach with respect to any outstanding or open supervisory issues and to make every effort to reach a conclusion to any outstanding supervisory issues at the time of the proposed transfer of the registered office. In addition, destination EEA regulators should apply a consistent approach toward existing permissions or other approvals under Solvency II, with any existing freedom of establishment or freedom of services notifications remaining valid.

For EEA insurers with branches in the UK, the Prudential Regulation Authority (PRA) can require a new branch authorization application. However, the PRA has confirmed that it recognizes that the submission of an entirely new branch application would be unduly burdensome for insurers in some cases. The PRA has confirmed that it will take a proportionate approach in its assessment and streamline the process where possible, focusing primarily on the changes resulting from the redomiciliation and any other relevant factors (such as the recency of the last authorization application).

In relation to group supervision, where a parent insurance undertaking is redomiciled, the destination EEA regulator is expected to review the mapping of the group to identify all related branches and insurers of the group post redomiciliation. Where a new group supervisor is required due to the redomiciliation, the decisions of the previous group supervisor relating to solvency capital requirements and related permissions remain in effect (unless there have been material changes to the internal model or a new application of the group internal model).

The Decision also requires that consumer protection remain at the forefront of the minds of the redomiciling insurers and regulators. EEA regulators must ensure that operations remain wholly uninterrupted by the transfer and ensure that the redomiciling insurer is provided with information relating to any relevant national legislation and disclosure requirements. Redomiciling insurers will be required to inform policyholders and beneficiaries of any changes to administrative information such as a change of head office address or the new regulator for complaints handling. Any material changes that may affect the rights of policyholders, such as a change in the level of compensation available under national insurance guarantee schemes, may require the redomiciling insurer to communicate and advise policyholders of the right to cancel contracts or receive compensation (if provided for under applicable local law).