Brexit leaves expanding US firms in limbo

US re/insurers mulling a launch in the UK or Europe are stuck in limbo thanks to the uncertainty created by the UK’s vote to the leave the EU and the impasse before negotiations even start, Andrea Best, partner at law firm Drinker, Biddle and Reath, told PCI Today.

Best said the situation is even more complex because of the range of outcomes that could eventuate as a result of negotiations. A so-called ‘hard’ Brexit could lead the UK to cut all trade agreements and other ties with the EU, meaning insurers lose access to the single market.

A so-called ‘soft’ Brexit could allow the UK to leave the EU but retain trade agreements and the ability to trade with the EU—a better outcome for insurers.

“It’s too early to tell if it’s going to be hard or soft Brexit, or anything in between those two positions,” Best said.

She said that for US companies looking to cross the Atlantic, a key issue they must consider is whether they are intending to set up a subsidiary or a branch. “And, are they looking at London as the market they want to access, with Europe as a secondary concern, or the other way around?”

Best added that a key issue that must be resolved when negotiations start is whether passporting arrangements, which are so important for re/insurers, can be maintained. These allow re/insurers to use London as a hub from which they access the rest of the EU and vice versa.

Best suggested that some companies may consider instead launching in Switzerland, which is not a member of the EU but does have access to the single market. However, the UK would also have to negotiate a new trade deal with Switzerland following Brexit, so some uncertainty remains.

Best thinks that many US companies may simply wait and see what emerges from the negotiations, and recommends making multiple plans to address as many eventualities as possible in the meantime.