LIIBA, LMG and IUA offer mixed reaction to Brexit whitepaper

The re/insurance industry has offered a mixed reaction to the publication of the UK Government's white paper on Brexit this week, with some commentators calling it a step in the right direction but others stressing that it does not resolve the key issue of contract continuity and doubt remains as to whether UK insurers will remain licenced to pay claims in a few EU countries without an agreement in place.

In a whitepaper nearly 100 pages long, the UK government has sets out its vision for the future relationship between the country and the EU. The key part of the document for the insurance industry was a section that covered the way financial services will be dealt with, which made it clear that, single the UK will leave the single market, it can no longer operate under the EU’s ‘passporting’ regime.

This was highlighted as a big problem by some industry bodies including Christopher Croft, chief executive of the London Insurance and International Brokers Association (LIIBA), who stressed the implications of this and reiterated the body’s belief that business would be best served by a mutual market access regime.

“We are disappointed that the Government has not reflected the strong feedback from our industry that both EU clients and UK business would be best served by a mutual market access regime. We will work with our members to understand the full implications of what is being proposed. As always, central to that effort will be a focus on how we ensure that the client is the one to suffer least from the disruption Brexit will cause,” he said.

"The issue of contract continuity must be resolved. There is some doubt as to whether UK insurers will remain licenced to pay claims in a few EU countries without an agreement in place. We therefore support the call by the FCA Chief Executive Andrew Bailey for this to be resolved at official level. The sooner the better. Transition arrangements will only postpone the issue.”

Malcolm Newman, chairman of the London Market Group’s Government Affairs workstream and managing director EMEA hub SCOR, also expressed concern around the implications of this but said he remained hopeful that a compromise could be reached.

“Whilst we are disappointed that our request for a bespoke arrangement delivering mutual market access is not part of the Government’s vision, we understand the difficulty of achieving this in the time remaining for an agreement. The desire to obtain the best possible outcome for both the UK and EU27 inevitably leads to a need to compromise,” Newman said.

“While we are concerned that the Government’s proposal for an economic and regulatory arrangement may not fully meet the needs of the London Market, we are hopeful that the detail behind a new agreement will consider the customers and businesses in the EU27 who rely on the London Market to insure their most complex risks.

“Without that, such an agreement threatens to cause significant disruption to a wide range of EU sectors – including airlines, bank lending and vital public services – and will put up barriers to accessing London’s breadth of expertise and specialist capacity, some of which cannot currently be offered by any other insurance centre.

“A crucial next step is progress on the issue of contract continuity. EU27 clients should not be left in a situation where there is contractual uncertainty and protection gaps, and we cannot have a situation in which their insurers would have to break the law in order to fulfil their contractual obligations. The Bank of England have unilaterally offered a solution for EU27 entities operating in the UK, allowing them time to adjust to any future trading relationship, we now need to see the EU27 confirm an implementation period, giving the same certainty for UK entities and their EU27 clients.

“We will work with our members to understand the full implications of what is being proposed, and will continue to work closely with the UK Government in the hope that the negotiations can now move forward. As always, central to that effort will be a focus on how we ensure that the client is the one to suffer least from the disruption Brexit will cause.”

Omar Ali, UK Financial Services Leader at EY, agrees that proposals for mutual market access now seem unlikely to occur but also stated that what has been proposed could still prevent the fragmentation of the financial markets.

“The UK government has clearly acknowledged some of the EU’s red lines in a bid to accelerate the negotiations. The UK’s long trailed mutual market access proposals for financial services firms have been officially struck from the options, following messaging from the EU that it is the sole preserve of members,” Ali said.

“The revised proposals won’t be as welcomed by the industry, but they should go some way in ensuring the European capital markets are not entirely fragmented. They seek to broaden the EU's existing third country equivalence regime to cover more financial products and services, set out new regulatory and supervisory cooperation tools, and to manage any divergence through ongoing monitoring and practicable timeframes. However, the detail remains light and, as ever, is subject to negotiation.

“Overall, today won’t give firms much more to go on than they’ve had to date, and they certainly won’t be changing their plans as a result. The news that financial services firms really await is confirmation of an implementation or transition period scheduled to begin in March, and that we are not heading towards a no deal scenario.”

But not all parties were negative on the whitepaper. The International Underwriting Association struck a softer tone with Dave Matcham, chief executive of the International Underwriting Association, noting that it is pleased with the progress that appears to have been made.

“The IUA welcomes publication of the Government’s Brexit White Paper and is pleased that it recognises the importance of making cross border trade in financial services as efficient as possible,” he said.

“The proposed economic and regulatory partnership promises significant levels of dialogue and cooperation between EU and UK insurance supervisors. This will be important in establishing a secure and stable trading environment upon which companies and their clients can confidently rely.

“We hope that this proposal will allow for the continued cross-border transaction of both reinsurance and large scale wholesale risks for marine and aviation business and that it forms the basis of an enduring trading relationship.”

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