France enacts a new legal regime for insurance contracts entered into before Brexit in the event of a no-deal.
On 7 February 2019, the French Ministry of Economy and Finance passed an Ordinance (No. 2019-75) introducing a contingency plan for the financial institutions sector in connection with the withdrawal of the United Kingdom (UK) from the European Union (EU) (the Ordinance).
The Ordinance amends the provisions of the French Insurance Code (FIC) (among others) and will enter into force as from the date of exit of the UK from the EU in the event of a no-deal.
Continuity of existing insurance contracts and management of the same in run-off by UK insurers
The new provisions of the FIC aim at ensuring legal certainty for French policyholders and insureds who entered into an insurance contract with a UK risk carrier before Brexit, whilst encouraging UK risk carriers to transfer to EU licensed risk carriers their insurance business in respect of risks located in France.
These provisions confirm that:
- UK insurers are entitled to continue performing post-Brexit insurance contracts validly entered into pre-Brexit notwithstanding the loss of their passporting rights;
- and, as a result, French policyholders and insureds who entered into an insurance contract pre-Brexit with a UK insurer which has lost its permissions remain covered under their insurance contract and are entitled to the benefits or compensation payable thereunder.
However, UK insurers which have lost their passporting permissions as a result of Brexit will no longer be entitled to renew, extend, or modify their existing policies, or to write new policies, and the Ordinance provides for an obligation for the relevant insurers to inform their French policyholders and insureds of their situation.
Pursuant to these new provisions:
- Where a foreign insurance company duly established in a third party country has entered into an insurance contract pursuant to Article L. 310-2 I. 2° (i.e., a UK carrier formerly acting in France under the freedom of establishment or freedom of services regimes) no longer fulfils the conditions under which direct insurance operations may be carried out in France, such insurance contract may not (i) be renewed or (ii) give rise to any direct insurance operations comprising the payment of premium.
This provision addresses the situation of a UK risk carrier having initially entered into an insurance contract with a French insured (under the freedom of establishment or freedom to provide services) and having lost its passporting permissions as a result of Brexit. This provision implicitly confirms that such insurance contract will remain in force post-Brexit and that the insurer may continue to perform its obligations under the contract, e.g. to pay claims under the contract. It however excludes any renewal of the contract or any (new) premium call.
The prohibition of premium calls is not meant to include the payment of premium that the policyholder is bound to pay under its (existing) contract, as recurring premium, and only relates to new premium calls, e.g. resulting from a change in the scope of cover/ risk insured.
This means that a UK insurer which has lost its permission may continue managing in run-off insurance policies lawfully written by it pre-Brexit and excludes, as a result, any risk for the UK insurer managing such policies in run-off being sanctioned on the grounds of unlawful conduct of direct insurance operations in France post-Brexit.
- All insurance contracts which are renewed or which give rise to any direct insurance operations by a third party country insurance company including the payment of premium shall be deemed null and void. However, such nullity shall not be enforceable against insureds, policyholders and beneficiaries under such insurance contracts.
- Insurance companies which have lost their passport shall inform their insureds of that fact. The content and format of this information obligation is yet to be determined by decree.
- Any person carrying out insurance activities, on the French territory, without complying with the provisions of the new article L. 310-2-3 will be subject to a three-year prison sentence and a EUR 75,000 fine (or EUR 375,000 for legal entities).
Powers of French regulator maintained post-Brexit relating to pre-Brexit business
The Ordinance clarifies the powers of the French regulatory and supervisory authority, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) as regards financial activities carried out in France by UK entities under the freedom of establishment or freedom of services pre-Brexit and the management in run-off of insurance portfolios post-Brexit.
Pursuant to the new provisions:
- The powers of the ACPR to impose administrative and pecuniary sanctions will remain the same as pre-Brexit in respect of acts committed before Brexit by persons under its supervision and control at the time the offence was committed. This therefore allows the ACPR to initiate proceedings post-Brexit for acts committed pre-Brexit by a UK insurer; and
- the powers of the ACPR to ensure that insurers acting on a freedom of establishment or of services basis comply with French laws applicable to them (e.g. mandatory provisions of insurance law) will be extended to insurance portfolios covering French risks and managed in run-off by an UK insurer post-Brexit (as described above), whilst taking into account the supervision exercised by the relevant authorities in the UK. This means that the regime of “host country control” currently in place for matters such as conduct of business and insurance contracts law will remain in force in respect of portfolios managed in run off.
The Ordinance is available on this Link (in French).
With the Ordinance, France joins Germany, Ireland and Luxembourg in announcing own-initiative legislation to deal with the problem of contract continuity in the absence of any agreed withdrawal agreement or EU-level solution.
 An ordinance is a piece of secondary legislation passed by the French Government (Ministers) under the powers given to it by an act of Parliament pursuant to Article 38 of the French Constitution. In this case, it has been passed pursuant to Law 2018-30 dated 19 January 2019.
 New Article L. 310-2-3 of the FIC, which is inserted in Chapter I, Title III of Book III of the FIC.
 Provided for in I of the same Article.