UK-based insurers are at risk on not completing the post-Brexit plans before the country departs the European Union (EU) and some run the risk of being “timed out” as they try and establish new operations in the eurozone, warns an industry senior executive.
Mark Weil, chief executive officer (CEO) for the UK and Ireland operations at the insurance broking and risk advisory group Marsh, told the Financial Times that some companies would struggle to complete their preparations in time.
The FT notes that large parts of London’s £60bn (US$75bn/€70bn) commercial insurance market use EU passporting rights to access continental European markets. As these are expected to disappear after the UK’s departure from the EU, many insurers will need to set up new subsidiaries in alternate locations. Dublin, Luxembourg, Malta and the Netherlands are expected to be popular destinations.
The countdown for insurers will begin when the UK government triggers Article 50, which is expected to happen next month.
“They are all looking to similar locations due to talent and regulatory flexibility,” commented Weil. “But these are not places with lots of bandwidth. There is a danger that you will get timed out if local regulators get swamped with applications.”
However, he told the FT that even if some insurers miss the deadline, there could be ways of structuring new policies so that clients do not miss out on coverage. “There are solutions we’ve been working on. “In a ‘bridge’ solution, you would have an insurer with a licence in the EU which would provide a front, and then wholesale the business back to London where the capital is.”
Some insurers in the UK insurance industry believe that it has been hampered by EU regulations, particularly the capital adequacy requirements imposed by the Solvency II directive (S2) and will become stronger and more competitive once Brexit takes place. Solvency II has been implemented differently in each EU member state and UK insurers must hold more capital than their continental rivals, pushing up costs and harming business.
“S2 was meant to create a pan-European harmonisation of regulation, it absolutely hasn’t,” said Nigel Wilson, CEO of Legal & General, last month. “We have sold our Irish, French, Dutch, German and Italian businesses over the past two or three years.
“There is a greater chance of us entering the EU market in a post-Brexit world where, bizarrely, we will have much more of a level playing field than we have pre-Brexit.”
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