The Great Brexit Breakaway

On September 19, global reinsurer XL Group revealed plans to move its principal EU insurance company, XL Insurance Company SE (XLICSE) from the UK to Dublin in 2018 in response to Brexit.

The CEO Mike McGavick said that since the referendum announcement XL Group has made it clear that its top priority is to provide certainty and consistency of service to its clients and brokers, and that the move meant it could deliver on this commitment.

Over the past few months, a number of reinsurers have set up a post-Brexit contingency plan to ensure they can continue to write onshore EU business.

Following the UK’s decision to leave the EU, insurers that do not have a subsidiary outside the UK have faced significant pressure to reassure clients in the rest of the EU that there will be no interruptions to the re/insurance services they provide to them, according to an AM Best report, Location, Location Location—Insurers Unveil Choices for European Offices, published on September 6.

The report recorded more than 15 re/insurers that have made company location announcements—whether that be the formation of an EU subsidiary or the redomiciliation of part of the business, or even just an announcement to say the company is considering moving—between March 2017 and the time of its publication.

Ireland (Dublin specifically), Luxembourg, Belgium (Brussels specifically) and Germany were considered the most popular choices.

Including the XL Group move, Dublin and Luxembourg have been the preferred choices with six company location announcements each.

“AM Best’s analysis of company announcements over the past few months reveals that Ireland, Luxembourg and Belgium have been among the most popular domiciles,” says senior director Catherine Thomas.

“However, while these three domiciles are emerging as key locations, no single city necessarily features as a major European insurance hub. Instead, domicile choice has been driven by the specific considerations of individual insurers.”

General considerations when selecting a location have included proximity to clients, the ability to attract talent and the existence of a branch in a particular location, as well as the local tax regime.

Law firm Moore Stephens partner Peter Allen says that when UK re/insurers and brokers are deciding whether they need a post-Brexit contingency plan, clients tend to fall into four categories.

“Some already have an established operation onshore in the EU which can be re-purposed to act as the EU distribution hub in the event that no Brexit agreement is reached. These are mainly the larger carriers and brokers,” he explains.

“Some don’t, but have plans to establish something new or make significant changes to an existing operation. These are all the carriers and some of the larger brokers that are not in the first category.”

Dublin

In a survey carried out by Intelligent Insurer in early April 2017, Ireland was voted the favourite EU location for insurers seeking to create a unit within the EU to retain access to the common market after Brexit.

As well as to provide certainty to its clients, McGavick says, the XLICSE’s move to Dublin was partly because he considers it a “natural home” for the business in Europe.

“We have a long and established presence in Ireland and we understand and respect the high quality business environment, the regulatory environment and the talent of the people here,” he continues.

Other re/insurers that have made location-related announcements for Dublin in the last six months include Admiral Group and Standard Life in April, Legal & General in May, Chaucer in June and Beazley in July.

Chaucer, an insurance group underwriting at Lloyd’s, launched a Dublin-based subsidiary on June 21 to write international specialty re/insurance business.

Martin Shanahan, CEO of Industrial Development Agency Ireland (IDA Ireland), suggested that Chaucer’s choice of Dublin is another signal to the market that financial services companies can establish there quickly in order to service their international and European customers within minimum disruption to their business.

“Ireland has the right mix of regulation, skills, experience and office space to make us a very logical place for financial services to locate,” Shanahan says.

When Beazley announced on July 21 that it had received approval from the Central Bank of Ireland for its Irish-domiciled reinsurer Beazley Re DAC (Designated Activity Company) to transact insurance business throughout the EU, it similarly cited Dublin having a highly regarded regulatory system and local access to talent.

Luxembourg

In March, American International Group (AIG), was among the first big insurance providers to make headlines, revealing plans to ensure it can secure passporting rights and carry on writing business in the EU.

The proposed reorganisation is expected to be completed in the first quarter of 2019. AIG currently writes business in Europe from a single insurance company based in the UK, which has branches across the European Economic Area (EEA) and Switzerland. There will be two subsidiary companies from 2019, the existing one in the UK to write UK business and the other in Luxembourg to write EEA and Swiss business.

The CEO of AIG Europe, Anthony Baldwin, said that it was a decisive move that ensures AIG is positioned for whatever form the UK’s exit from the EU ultimately takes.
“Luxembourg, a founding member of the EU, offers us a secure location in a stable economy with an experienced and well-respected regulator in continental Europe close to many of our major markets,” he said.

Other re/insurers which made location announcements in the last six months include Hiscox and FM Global in May, RSA insurance Group and CNA Hardy in June, and Liberty Specialty Markets (LSM) in July.

The primary objective of LSM’s launch, which intends to operate its EU operations via an insurance company and insurance intermediary domiciled in Luxembourg, is similarly to minimise disruption.

Nick Metcalf, LSM’s president and managing director, commented: “It is important to us to locate ourselves in a robust regulatory environment, and Luxembourg offers us exactly that. The regulator is well-respected, pragmatic, and insurance-specific and so understands the market very well.”

LSM will maintain its London headquarters, but the post-Brexit structure aims to complement its European strategy.

Brussels

Just one day after the UK officially notified the EU that it is leaving the union through the triggering of Article 50 on March 29, Lloyd’s of London announced that it is setting up a new European insurance company to be located in Brussels to secure access to the EU market.

Lloyd’s CEO, Inga Beale, said that the intention to create a corporation in Brussels is to allow the company to be ready to write business for the January 1, 2019 renewal season, subject to regulatory approval.

The new company will be able to write risks from all 27 EU and three EEA states after the UK has left the EU, providing customers and partners continued access to the Lloyd’s market.