29 March 2017Insurance

Insurers’ Brexit preparations gain momentum

As UK’s Prime Minister Theresa May signs the letter that will formally begin the UK's departure from the European Union, the insurance industry is expected to accelerate its plans to adapt their business and move operations in order to be able to service their clients within the European Union.

"With two years on the clock until a potential Brexit, insurance companies, whether UK headquartered or currently benefitting from passporting into the UK, simply cannot afford to wait for a deal to emerge before beginning to implement their contingency plans,” said Ashley Prebble, insurance partner at law firm Clifford Chance. “In the coming months, we fully expect to see more insurers confirming new locations for their EU business and starting to implement the early stages of their plans to ensure that they can continue to serve their clients across the continent."

US giant AIG has selected Luxembourg as its European headquarters while Lloyd’s of London is expected to create a re/insurance hub either in Brussels or Luxembourg.

Ivor Edwards, European head of Clyde & Co's corporate insurance group, said: “Insurers haven't been sat waiting for Article 50 to be triggered since the referendum. Planning for Britain's exit from the EU is well underway as insurance carriers believe they need to take concrete steps for all eventualities by setting up carrier companies in EU27 countries. Carrier companies are by far the most popular and realistic solution to allow insurers to carry on writing business in the EU post Brexit. But they require time, money and commitment to set up. Fronting arrangements can work but are complicated and not a solution for carriers who want to write significant amounts of business.”

Germany is also in the run as a potential location for insurers wanting to secure access to the EU market. The country is attractive because it is Europe’s industrial heartland and the region’s most important economy as well as home to some of the finest insurers worldwide, according to law firm Clyde & Co. Moreover, Germany combines high regulatory standards alongside top infrastructure and fiscal stability to create a sophisticated and attractive marketplace.

France, on the other hand, has a reputation as a heavy-weight market for financial services, leading the EU in terms of technological innovation and is known as the most innovative marketplace in continental Europe for fintech and insurtech, according to Clyde & Co. France is taking steps to attract companies relocating from the UK with a joint initiative from banking and insurance supervisors promising to speed up the licensing process.

"It's not only UK based companies that are affected and who are making plans,” said Edwards. “There are over 500 general insurance companies headquartered in continental Europe who passport into the UK that are taking steps too."

While the process of exiting the EU has a timetable of 2 years with a potential extension, the insurance industry is requesting a transitional period to allow insurers to delay the final decision on moving the business and decide upon it only when there is clarity about the final deal.

“Without these transitional arrangements, any new deal may be less relevant as the plans will have already been implemented," Prebble said.

Edwards added: "The insurance industry will be hoping that the government achieves the freest possible trade in financial services between the UK and EU Member States as part of a new strategic partnership agreement. It remains in everyone's interests that financial services can be carried out efficiently across the continent by a system that provides for mutual market access.

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