On 19 February 2021, the Senate (upper house) passed the Act amending the Act on Trading in Financial Instruments and Certain Other Acts (the “Act“), which introduces long-awaited rules for the run off of UK insurers’ policies following Brexit.
Until now, whether or not these policies could be performed after 1 January 2021 raised huge legal questions. At the same time, however, the policies themselves remained valid and the UK’s withdrawal from the EU was neither a reason for termination of a policy, nor did it affect the insurer’s obligation to make a contractual performance. On the one hand, this meant a stalemate situation for the UK insurers who did not want to sell their insurance portfolio / open a branch in Poland. On the other hand it effectively left insured persons without insurance protection.
According to the position of the Polish supervisory authority (KNF), it was not possible to continue servicing policies sold by insurers from the UK without obtaining a licence to conduct insurance activity in Poland (or in another EU Member State). This clearly violated the interests of insured persons in ensuring uninterrupted performance of ongoing insurance contracts, continuity of insurance coverage and the possibility of receiving performances due. And this where (as indicated in the explanatory memorandum to the Act) 12 insurance companies from the UK have not yet taken any steps enabling them to continue their operations in Poland.
This unfavourable situation will finally be changed by the Act, which lays down rules on the run off of insurance business conducted by the UK’s insurers. According to Article 8 of the Act, the performance of insurance contracts, reinsurance contracts and retrocession contracts concluded before 1 January 2021 in the territory of Poland (or concerning risks located in Poland) by an insurance/reinsurance company from the UK, Northern Ireland or Gibraltar, until expiration of claims under those contracts, will be governed by the provisions of Chapter 8 (right of establishment and the freedom for entities from EU Member States other than Poland to provide services) of the Act on Insurance and Reinsurance Activity and Article 173(1) and (2) thereof accordingly.
In practice, this means that UK insurers will be able to continue to perform contracts entered into before 1 January 2021, including paying compensation due.
However, they will not (without taking steps enabling them to continue their operations in Poland) be able to sell new or prolong existing policies, cover new risks under existing policies, increase the sums insured in existing insurance policies or make other changes to insurance policies that increase the insurer’s liability.
This transitional regulation comes into force as soon as it is promulgated and, importantly, with retroactive effect from 1 January 2021. The regulation will therefore remedy any steps taken by insurance companies concerning the performance of existing policies after 1 January 2021.
Once the Act comes into effect, the activity of insurance and reinsurance companies from the UK will be subject to two legal regimes: for insurance contracts concluded after 1 January 2021, insurers will be subject to the rules provided for foreign insurance companies, and for contracts entered into before 1 January 2021, they will be subject to the rules described above.
Dr Joanna Schubel