No-deal Brexit will mean friction for European cedants

If the UK leaves the EU without a deal and the European regulators refuse initial Solvency II equivalence, European cedants could lose access to elements of the London reinsurance market, Peter Allen, partner at Moore Stephens, told Monte Carlo Today.

“Lloyd’s can handle this through Brussels, and most reinsurance underwriters have underwriting operations in multiple jurisdictions, so not many reinsurance writers in London are directly affected,” said Allen.

“Reinsurance brokers could also use intermediary placements through jurisdictions that are Solvency II equivalent. But it would need thought and negotiation. April renewals are the most vulnerable, given the UK’s planned exit in March 2019.”

For EU-based insurers writing business in the UK, Allen noted, the UK government and regulators have made it clear they intend to be accommodating and flexible, and allow for a straightforward regulatory transition.

He added that many European insurers also have London operations subject to the same challenges as UK insurers, given the UK government’s decision not to pursue passporting. “However, European insurers, by definition, will have a distribution capability onshore in Europe so they are not faced with the need to set up something bespoke.”

Allen warned that Brexit could potentially weaken London’s status as a re/insurance hub.

“If skilled immigration to the UK becomes difficult or costly after Brexit then it could act as a constraint on businesses here, just as it did in Bermuda,” he said.

“However, it seems unlikely that European regulators could hold the line of refusing Solvency II equivalence in the medium term.

“As such, the expectation has to be that London will carry on as a major component of most reinsurers’ portfolios,” he concluded.