Impact of Brexit on Luxembourg insurance companies

On 2 April 2020, the Luxembourg Commissariat aux Assurances (the CAA) published an information note highlighting the impact of Brexit on the application of CAA circular letter 16/09 (Circular 16/9) relating to the deposit of transferable securities and cash used as assets covering technical provisions of direct insurance undertakings and pension funds subject to the supervision of the CAA (the Information Note).

Deposits of matching assets by Luxembourg insurance companies with credit institutions and/or branches established in the United Kingdom or its dependent territories are under scrutiny and a transfer of matching assets to a depositary in the EEA may be required. According to the CAA's assessment of existing deposit agreements, this concerns deposits by Luxembourg life insurance companies only. You can access the Information Note by clicking on this link (only available in French for the time being).

The purpose of the Information Note is to provide guidance on:

1. the deposits of matching assets permitted in the context of Brexit; and
2. the conditions applicable to the deposits of matching assets in the United Kingdom or in its dependent territories.

Deposits of matching assets permitted in the context of Brexit

As the United Kingdom and its dependent territories will become a third-party country as from 1 January 2021, the deposit of assets covering technical provisions with credit institutions established in these territories will need to comply with legal and regulatory provisions applicable to deposits outside the European Economic Area (EEA).

Pursuant to article 55 of CAA regulation N°15/03 of 7 December 2015 relating to insurance and reinsurance undertakings, as amended (the CAA Regulation 15/03), the deposit of matching assets with credit institutions having their registered office outside the EEA is only permitted upon a reasoned request from the concerned insurance undertaking. Furthermore, Circular 16/9 provides that such deposit may only take place in the country of the registered office of the non-EEA depositary.

Consequently, a deposit with a branch established in the United Kingdom or one of its dependent territories is not permitted, regardless of whether the credit institution to which the branch relates has its registered office in an EEA country or not. In the context of Brexit, only deposits made on an account held at the registered office of a credit institution having its registered office in the United Kingdom or one of its dependent territories are therefore admitted.

Finally, the CAA considers that the conditions of eligibility, which the concerned credit institutions must fulfill pursuant to Circular 16/9, are met until further notice.

Conditions applicable to the deposits of matching assets in the United Kingdom or in its dependent territories

No modification of existing deposit agreements is required for deposits of matching assets in the United Kingdom or in its dependent territories.

Nevertheless, Circular 16/9 requires the existence of a legitimate reason (motif légitime) for any deposit outside the EEA, citing the following as examples of legitimate reasons:

• for all classes of insurance, there being an obligation under foreign law to deposit assets in a particular country or territory;
• in life insurance, there may be situations where the choice of a depositary outside the EEA is an essential condition for the conclusion of insurance contracts whose matching assets are to be deposited.

Absent a legitimate reason, assets currently deposited with a United Kingdom credit institution or domiciled in a territory dependent on the United Kingdom will need to be transferred to a credit institution located in the territory of the EEA.

Given that deposits in the United Kingdom or its dependent territories were not subject to specific prior authorization by the CAA, the CAA is not informed of the existence of a reason which may be recognized as legitimate for the deposit. However, the CAA reminds insurance companies that Circular 16/9 considers as legitimate reason in life insurance the fact that the choice of depositary outside the EEA is an essential condition for the conclusion of contracts whose matching assets will be deposited. If this condition is satisfied, certain steps must be taken vis-à-vis the client and only the assets that are part of a dedicated fund or a specialised fund can, according to the CAA, be deposited in the third country. The CAA understands (and assumes) that, for the majority of deposit agreements entered into with credit institutions having their registered seat in the United Kingdom or in one of its dependent territories, these agreements were primarily, if not exclusively, aimed at managing dedicated or specialised fund assets.