UK-domiciled reinsurers have responded to Brexit by establishing alternative platforms on the continent that will retain passporting rights irrespective of the eventual Brexit outcome. Clare Ruel reports
On Saturday, MP’s in the UK House of Commons voted on the backbench Letwin amendment to withhold final approval for Prime Minister Boris Johnson’s Brexit deal until relevant legislation has passed.
Johnson suffered a defeat of 322 to 306 for the amendment, while an estimated one million people marched on Parliament Square to demand a second referendum on the UK’s exit from the EU.
Amid the uncertainty and potential for a ‘no-deal’ exit, without an agreement reached between London and Brussels, reinsurers face some issues.
Re/insurance broker Aon has suggested a “no deal” or “hard” Brexit scenario is particularly concerning as it would mean the UK exiting without a transition period that maintains passporting rights for certain time.
A statement from Aon said: “This would effectively result in UK-domiciled insurers being unable to offer services into all EEA states on a cross-border basis.
“The same would be true of EEA [European Economic Area] insurers offering services into the UK on a cross-border basis, were it not for the fact that the UK authorities have put in place a ‘Temporary Permissions Regime’ that creates a window of time for EEA insurers to become re-authorised.”
However, reinsurance is not affected in the same way as primary insurance business.
This is due to cross-border treaty and facultative business being permitted under World Trade Organisation rules that would apply in a hard Brexit.
Aon’s statement continued: “In most cases, such business would continue to be written and serviced as it is now.
“Only in Germany, the Netherlands and Poland are there supplementary rules associated with the concept of ‘equivalency’ under Solvency II that would potentially impact services provided by UK-domiciled reinsurers into those markets.
”It is worth noting that, even in these territories, legislative changes are underway that, at the very least, should allow legacy business to be serviced from the UK for a specified period.
“Of course, all of the ‘noise’ around Brexit over an extended period of time has resulted in a great deal of uncertainty.
”In many cases, UK-domiciled reinsurers have responded by establishing an alternative platform on the continent that will retain passporting rights irrespective of the eventual Brexit outcome. The new Lloyd’s subsidiary in Brussels is a notable example.”