Post-Brexit passporting rights make London market access to EEA uncertain

Brexit could lead to a loss of business for Lloyd's of London unless the UK government is able to negotiate passporting arrangements to maintain access to the European Economic Area (EEA), according to a report by Fitch Ratings.

The report said that that without passporting rights, UK insurers wishing to underwrite risks from the EEA would need to set up entities in the EEA.

Fitch believes this could lead to business moving away from the Lloyd's platform.

According to Fitch, the EEA in 2015 accounted for £2.9 billion or 11 percent of Lloyd's gross written premium.

In the first half of 2016, the premium rates for London market insurers had continued to fall, for marine, energy and property lines in particular.

Some insurers, as Fitch suggests, have attempted to mitigate this by diversifying into specialty lines, where rates have held up better.

“London market insurers reported slightly improved investment returns in 1H16 compared with 1H15, driven by gains on fixed-income investments as yields declined, particularly following the Leave outcome in the referendum on EU membership,” said Fitch.

“However, we do not expect such gains to contribute to returns on an ongoing basis, and we expect low yields to be a drag on profitability.”