Brexit logistics ‘almost unachievable’
Regardless of how Brexit turns out, the logistics of what needs to be achieved by regulators in the relatively short period of time leading up to the UK’s departure from the EU are mind-boggling, with the challenges of EU-based insurers accessing the UK easily overlooked.
That is the view of Clive O’Connell, partner, head of insurance and reinsurance, at law firm McCarthy Denning, who points out that what the Prudential Regulatory Authority (PRA) must attempt to deal with during Brexit appears almost unachievable.
He estimates that there are around 700 EU-based re/insurers with passporting rights to the UK, each one of which will have to restructure. To continue doing business with the UK they will probably have to form a branch or a subsidiary in the UK; others may withdraw and put their operations into run-off.
“The PRA is cutting back on its resources—6 percent by 2022, as I understand it,” O’Connell said. “You have around 700 entities needing to do this yet on average it takes the PRA two years to license one new re/insurer.
“They probably authorise only two or three new entities per year. How will it all work? To add to that, you would also need to do a portfolio transfer into the new entity, increasing the burden.”
He added that the situation around portfolio transfers is further complicated by the fact that the legislation is designed to operate within the EU—once the UK formally leaves, it will not be valid anyway.
“This is one of many things that must be tackled somehow in negotiations, which are already behind schedule.”
He added that the regulatory log-jam could have a very real knock-on effect to consumers, especially if some players opt for run-off, as it would reduce competition in the UK market.
“If some of those 700 companies are not operating here any more, there would be a big impact on competitiveness and thus the consumer,” he said.
O’Connell added that there could also be a reduction in the offering and talent in the London Market as a result, although new ILS legislation and the proliferation of insurtech companies and platforms in the market would help to counter this.
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