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Brexit: The impact on insurance three months on

Brexit: The impact on insurance three months on

Brexit: The impact on insurance three months on It was seen as a monumental decision and one that could have a massive impact on the insurance sector – the Brexit vote in June was widely viewed as a surprise and one that large numbers within the epicentre of the business seemingly did not want.

However, three months on, and with Article 50 still to be acted on, has anything really changed?

The Financial Times launched an assessment of where the insurance industry is today, quoting Stephen Catlin, deputy chairman of XL Catlin, as saying “as the dust is settling, people are realising… the complexity of what has happened.”

Indeed the talk of complexity has dominated most official statements since the vote, with insurers seemingly offering a “wait and see” approach. Of particular concern is the issue of passporting, which is the use of single market rules to access one member state from an office in another. While life insurance companies have the advantage of their market being driven by local rules and local products, for commercial and wholesale insurers in particular the situation is far more complex – with the EU making up around 10-20% of London premium income according to the Financial Times report.

Are companies ready?
Despite the cautious words, some insurers have ready-made solutions in place, according to the report. For example, Beazley maintained a subsidiary in Dublin even though it moved its headquarters to London back in April; while many of the larger continental insurers could simply make greater use of the subsidiaries they already have in the city – Zurich, for example, has a UK-based subsidiary for its life insurance operations.

However, that’s not the case for every firm. Some of the largest global insurers – including the likes of AIG and Tokio Marine – have their European operations in London and use it to passport to the rest of the EU. Similarly, there are many London-based insurers that face the same issue.

Speaking to the publication, Dave Matcham, chief executive of the International Underwriters Association, outlines that most companies “could gamble and wait for a trade deal or explore other EU jurisdictions for a subsidiary.” Hiscox chief executive Bronek Masojada has already outlined that the company is looking at its current offices, as well as Malta and Luxembourg which “have good regulatory structures.” Dublin, the report suggests, is also likely to be a popular vote for many insurers as it already boasts a thriving industry and it doesn’t present the same language issues as other major European cities. 
All about timing?
Another major issue in light of the Brexit decision is whether insurers can afford to wait for an official political agreement before they make their moves.

It is estimated that setting up a subsidiary would typically take from 12-18 months with Charles Franks, chief executive of Tokio Marine Kiln telling The Financial Times that “in a game of brinksmanship where decisions get made late in the day, we’ll not be able to wait for a decision.” He stressed it is important to give clients confidence that the company will be there.

Even Lloyd’s, the centre of the UK wholesale and commercial insurance industry, appears to be weighing up its options. Though chairman John Nelson has ruled out a move from London, he has also stated that “our contingency plan would call for us to write EU business onshore in the EU.” Should passporting disappear therefore, it seemingly has two options – to set up a subsidiary in the EU or to set up a branch within each country that it operates. As a market, rather than a company, its situation is more complex and there is a risk that if negotiations are prolonged some insurers may choose to do business directly and bypass the market.

Of course, London still retains a position of massive strength – the expertise within the market is widely accepted as the best in the world, even ahead of New York. So it seems there will be a strong future for the UK insurance industry no matter what – however, whether it stays as strong as now remains to be seen.

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