14 September 2014 Insurance

An independent Scotland could target re/insurance

Re/insurers would need to review contracts and the wordings around policies if Scotland votes to become an independent country this Thursday (September 18), a specialist re/insurance lawyer has warned. But Scotland could also use its fiscal autonomy to become a centre for captive insurance and financial reinsurance in the long term.

“If Scotland does become independent, it will have full fiscal autonomy,” said Clive O’Connell, partner at law firm Goldberg Segalla. “This could enable Scotland to develop as a centre for captive insurance and financial reinsurance as a direct competitor to Ireland. For insurance and reinsurance, this is where the true opportunities may lie in Scotland’s leaving the union.”

O’Connell added that if the historic vote this week goes in favour of independence, one of the key issues will be the currency the new country would use. There are a number of possibilities ranging from adoption of the euro, remaining in the pound sterling, which is currently being resisted by the UK government, forming a new currency on parity with the pound or simply forming a new currency.

“Any of these options, other than remaining within the pound, could create issues for insurers and reinsurers,” he said. “While the formalisation of independence will not be immediate, it will be essential to review wordings to determine whether currency conversion clauses would be needed in the event of a new currency emerging.

“Care needs to be taken to ensure that all contracts which may be affected receive appropriate endorsements.”

In terms of regulation, he noted that Scotland would need to create a new regulatory body, although it would probably simply follow EU standards, particularly with the advent of Solvency II.

But he added: “There is a possibility, which is probably remote, that an independent Scotland would not be allowed into the EU. If this were to happen, the regulatory position would be very different and complex.

“Insurers doing business in Scotland would have to be authorised by the new Scottish regulator, unless that regulator sought a reciprocal arrangement with the EU.”

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