A Brexit trade deal needs to benefit both the UK and the EU – while protecting clients’ access to the London insurance market, according to the London Market Group (LMG), an association representing London’s re/insurance underwriters and brokers.
The LMG has published a report that sets out a roadmap for the UK government when it begins Brexit negotiations with the EU. The report presents “suggestions for how a new access arrangement could be approached,” which would help maintain the London insurance market’s position as the “largest global hub” for specialty insurance and reinsurance.
The market’s value to the UK economy is indisputable – which is why the report detailed a list of statistics, including the following: The London insurance market controlled more than £60 billion ($71.5 billion) in gross written premiums in 2013; more than £8 billion ($9.5 billion) of premium is brought annually to the market by brokers on behalf of EU customers.
Further, more than £6 billion ($7.2 billion) of international business is written in London by firms with a parent company or main base located elsewhere in the EU, “demonstrating the importance of continuing mutual market access between the UK and EU post Brexit,” said the report, titled “A Brexit Roadmap for the UK Specialty Commercial Insurance Sector.”
Business originating from the European Economic Area (EEA) also is important to the UK, the report said, noting that its total non-life GWP in 2015 (excluding the UK) was US$432 billion, or 21 percent of worldwide non-life GWP.
“If UK domiciled insurers and reinsurers cannot carry on business in this large market on the UK’s doorstep, the UK is a materially less attractive location for international insurers, reinsurers and investors.”
“Its unique qualities of concentrated capital, expertise and ability to provide global coverage ensure that London is relied upon as the best place capable of certain types of business,” which is why the UK government must protect that status in upcoming Brexit trade negotiations, the report added.
(The UK government can only begin negotiations when it triggers Article 50 of the Treaty of Lisbon, the formal notification of its intention to withdraw from the single market. It is expected that Article 50 will be triggered this month).
The LMG report highlights three London insurance market objectives for Brexit, which would help create a trade deal that would mutually benefit both the UK and the EU:
- Regulatory equivalence under Solvency II. While this would not give market access rights to the EU for UK insurers and reinsurers, a trade deal with the EU needs to assure that prudential regulatory regimes remain compatible.
- Unimpeded access to the EU market. Under a new EU trade agreement, UK-based insurers and reinsurers would like, as a minimum, to be able to accept business introduced to them by EU brokers. The new agreement should also contain a reciprocal right for EU-based insurers and reinsurers to do business in the London market, “unimpeded by additional capital requirements and allowing home state prudential supervision.”
- Implementation period with market access rights. “It is important to agree at the start of the negotiations an implementation period…during which the industry’s current market access rights would be retain,” LMG said. “Uncertainty over whether insurance policies will be enforceable is already affecting the decisions of the London insurance market’s clients.”
The report went on to detail the reasons that an implementation period is necessary: Brexit “is creating uncertainty in the minds of EU customers over the settlement of claims and the continuity of cover in future years and some are already seeking to reduce their exposure.”
Many insurance and reinsurance policies have a duration longer than the two-year Article 50 negotiating period, while other will give rise to claims that will be settled after this period, the LMG report went on to say.
“We are continuing to work closely with the government to see where there are existing precedents in current international agreements which could be used for the Brexit negotiations to support our industry,” said Nicolas Aubert, chairman of the LMG, in a statement.
“While these alone will not be enough, they are a good place to start and could provide elements that deliver significant advantages to both UK and EU insurers, reinsurers and brokers. This is crucial as it is not legally possible to write EU business from the UK under WTO Rules.”
The LMG is a market-wide body, bringing together the specialist commercial re/insurance broking and underwriting communities in London. It is supported by the International Underwriting Association of London (IUA), Lloyd’s of London, the Lloyd’s Market Association (LMA) and the London & International Insurance Brokers’ Association (LIIBA).
Source: London Market Group
*This story ran previously in our sister publication Insurance Journal.