Germany has approved rules allowing its financial regulator, BaFin, to set transition agreements for UK insurers and financial firms to avoid disruption from Brexit.
Under the proposed legislation, BaFin would let UK financial institutions continue with European Union passporting rights until the end of 2020, on a case-by-case basis, to maintain existing contracts, according to Bloomberg.
This latest development would enable British financial firms to continue operating in Germany as they do currently.
The approval would be a boost for insurers after the industry reacted gloomily to UK Prime Minister Theresa May's draft Brexit deal, which makes it likely the UK will have to apply for equivalence in financial services.
The chance of a no-deal Brexit has increased in likelihood to 20-30%, attendees were told at S&P Global Ratings 2018 European insurance conference in London last month.
From the UK’s part, EU firms which currently passport into the UK can choose to take advantage of a temporary permissions regime to avoid any service disruption.
Speaking to InsuranceERM, a spokesman at BaFin said the proposed amendments to the German Insurance Supervision Law give the regulator the possibility to grant a transitional arrangement until the end of 2020 to avoid any harm to policyholders and the beneficiaries of the insurance contracts.
He said: "This will enable insurance companies based in the UK to transfer or terminate existing contracts within a reasonable timeframe, or, where this is not possible, to meet the necessary prudential requirements for an orderly run-off of such contracts."