Insurers accelerate Brexit plans
In the absence of clarity as to what a future trade deal will look like between the UK and the EU, affected insurers have accelerated their plans to establish new EU subsidiaries, according to AM Best.
These subsidiaries will ensure that the insurers are able to underwrite EU business post-March 2019 or after any formally agreed transition period. Small insurers that do not have the resources to create additional companies are forming relationships with local carriers that can front business for them in the EU.
The ability to continue to conduct cross-border business is a particular concern for Lloyd’s, the London market and other UK-based commercial insurers. It is less of an issue for retail insurers as they principally underwrite domestic business.
“Insurers are also addressing the possibility that, in the absence of a political solution, companies in the UK that currently make use of passporting rights will not be able to service claims on existing EU policies after Brexit,” said Catherine Thomas, senior director, analytics. “As a contingency, a growing number of companies are exploring potentially expensive Part VII transfers of existing EU business to their newly created subsidiaries.”
The rationale for domicile choice has been driven by the specific considerations of individual insurers, including proximity to clients and the ability to attract talent, as well as the local tax regime. The domestic regulator has also been important, particularly its approach, expertise and accessibility. However, the principal driver of domicile choice has been whether there is an existing operation, such as a branch, in a particular location.
Yvette Essen, director of research, said: “To date, Luxembourg and Ireland have emerged as the most popular locations for a new EU subsidiary. However, no single city appears likely to challenge the position of London as Europe’s principal re/insurance hub. London is likely to remain one of the world’s leading insurance centres, supported by its pool of underwriting talent and access to related services.”
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