The European Insurance and Occupational Pensions Authority (EIOPA) has published an Opinion on supervisory convergence in light of the UK withdrawing from the European Union (published 11 July 2017). The Opinion is directed to Member State supervisory authorities in the “EU27” or Member States excluding the UK. The Opinion assumes that the UK will become a third country after withdrawing from the European Union. Naturally, the Opinion is not withstanding any deals arranged as part of the exit negotiations that might enable continued access to the Single Market or a decision concerning Solvency II equivalence status.

What are the main principles set out in the Opinion?


EIOPA is looking to ensure that UK (re)insurers relocating to an EU27 State must have real substance in the new location. This will require the supervising authorities considering authorisation requests to apply strong scrutiny to the applicant’s governance structure, human and technical resources, geographical distribution of activities and outsourcing arrangements. Significantly, any previous approval of own funds or the use of an internal model under Solvency II should be subject to fresh approval by the new supervisory authority. Although any previous internal model approval (presumably by the PRA) may be taken into account, changes in risk profile or a change in the use of the model might prompt a new model application. An EU27-based subsidiary of a UK group currently applying the group internal model to calculate its solo capital may need to make a new internal model application. EU27 groups may also need to submit a new group model application where they have a UK subsidiary as they will after Brexit include a third-country within their group.


EIOPA wishes to ensure that new EU27 subsidiaries can be effectively supervised. Accordingly supervising authorities should ensure that subsidiaries have real decision-making substance and are not mere empty shells. Subsidiaries should demonstrate appropriate substance proportionate to the nature, scale and complexity of their business. This will include having sufficient on-the-ground staff and key function holders in the EU27 State who are able to dedicate sufficient time and resources to running the subsidiary. Supervisors should expect senior management to display proper knowledge of local markets, products and risks.

The Opinion requires supervisors to take into account extensive reinsurance arrangements (whether intra-group or third party) in authorisation applications. A minimum retention of 10% of business written should be envisaged. In particular the supervisor should challenge risk transfers by assessing: the impact of risk-transfer on counterparty risk and currency risk, the impact on asset composition, the extent to which reinsurance recoverables will be collateralised and the capital strength of the EU27 subsidiary.


Although outsourcing can bring clear benefits, it can also pose challenges to supervisors who will need to have oversight of the arrangements. Where UK insurers establish an EU27 subsidiary and outsource services back into the UK, EIOPA wishes to ensure that the outsourcing will not: impair the quality of governance, increase operational risk, make it harder for the supervisor to monitor compliance or undermine the quality of service to customers. On-site inspections by supervisors of outsourced service-providers should be ensured. EU27 subsidiaries should retain the expertise and resources to monitor risks posed by outsourcing and should be in a position to resume direct control over an outsourced activity through insourcing or an alternative outsourcing arrangement.

What next?

(Re)insurers setting up a subsidiary in one of the EU27 States in order to have continued access to the Single Market will need to be aware of the EIOPA Opinion as national supervisors will be expected to demonstrate that they are complying with its principles. EIOPA does not wish to see the development of regulatory arbitrage as EU27 States offer ‘easy’ Brexit solutions to UK firms. In particular, EIOPA is keen to ensure that new subsidiaries have substance and are not merely a means for UK insurers to continue business “as usual”.

View: EIOPA publishes guidance on insurers Brexit relocation plans