A bumpy Brexit may shrink the UK re/insurance hub

The UK re/insurance market is likely to shrink due to the UK’s exit from the European Union as companies reorganize their operations to ensure access to the EU common market. Nevertheless, London is likely to remain an important re/insurance centre after the country exits the EU.

This seems to be the consensus of commentators and experts in the re/insurance sector at the moment, all trying to second-guess both the exact nature of the UK’s exit from the EU and its implications for one of the most important sectors to the UK economy.

UK’s Prime Minister Theresa May has recently, perhaps unintentionally, reminded the country’s businesses on the uncertainties that Brexit is bringing about.

In a long awaited January 17 speech, May said that the UK "cannot possibly" remain within the European single market. She has, however, promised to push for the "greatest possible" access to the single market following Brexit. Priorities in the negotiations with the European Commission include a tariff-free trade and a customs agreement with the EU. But she also said that she would rather do “no deal” than one which is a “bad deal for Britain”.

“Whatever the precise outcome of negotiations, insurers won't wait-and-see,” says Ivor Edwards, corporate insurance partner at law firm Clyde & Co.

“Planning for Britain's exit from the EU is well underway as insurance carriers believe they need to take concrete steps for all eventualities by setting up carrier companies in EU27 countries,” Edwards adds.

Insurers are already assessing financial centres including Dublin, Paris, Frankfurt and Luxembourg, as well as other locations where they have branch operations, according to a January 19 AM Best report titled “Brexit Uncertainties Weigh on UK Insurers but Rated Entities Able to Withstand Pressure”.

Local brokers are well established in EU insurance and reinsurance hubs and a significant increase in accessing business in different cities by the overall financial sector could have longer-term implications for London as a financial centre.

Catherine Thomas, senior director, analytics at AM Best, says that “the ability to continue to conduct cross-border business throughout the EU is principally a concern for Lloyd’s, the London market and other commercial insurers. To continue to underwrite EU business, these companies are likely to need to establish an EU-domiciled subsidiary, if they do not already have one. This would have associated costs, operational requirements and resourcing implications,” she adds.

Also, the UK’s vote to leave the EU has resulted in considerable uncertainty regarding the UK’s economy, which could have a negative impact on domestic insurers’ premium volumes, AM Best says. Any decline in gross domestic product (GDP) would likely lead to a reduction in demand for both life and non-life insurance, analysts believe.

This is a snapshot of a longer report you can read  here.

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