Execs fear Brexit strategy will weaken UK as re/insurance hub, survey reveals

The Brexit strategy presented by Prime Minister Theresa May this week will weaken the UK as a re/insurance hub, a majority of respondents to an online survey by Intelligent Insurer believe.

In a long awaited speech on Tuesday January 17, May said that the UK "cannot possibly" remain within the European single market.

She promised, however, to push for the "greatest possible" access to the single market following Brexit. Priorities in the negotiations include a tariff-free trade and a customs agreement with the EU.

The prime minister also said she wanted the UK to be able to negotiate trade deals with other countries around the world as part of plans to create a "truly global Britain".

But the survey (180 participants) showed that 67 percent of Intelligent Insurer readers believe that May's Brexit strategy will weaken the UK's position as a re/insurance hub.

Some respondents suggested the clarity that the UK will leave the single market will prompt more firms to set up elsewhere.

“The business world is already thinking of other cities to cover the business environment that the City will leave,” said Jean Carlo Calderón from Latino Insurance.

Frankfurt, Dublin and Paris have been marketing themselves to attract UK businesses wanting to ensure access to the EU market after Brexit.

“Britain will isolate itself, costs for companies and consumers will be higher, international insurance companies will move their headquarters to the continent,” said Jan van Stigt Thans from Risk & Business.

Another respondent noted that “access to the European market as well as global market regarding global re/insurance programs will be difficult or/and complicated [after Brexit]. London Market will become a player on "list 2".

According to the survey, Brexit uncertainty is likely to shrink the UK re/insurance market and there will be fewer senior jobs in London.

“The uncertainty will drive business to other European reinsurance hubs such as Paris and Munich, but also non-EU Zurich, where the rules of engagement are clear, certain and stable,” another respondent said.

The re/insurance sector in the UK has been particularly worried about the possibility of losing its passporting rights. The mechanism provides a company authorised in one member state the ability to conduct cross-border business without being required to apply for any additional authorisation or hold assets locally.

The Chartered Insurance Institute (CII) had warned on a “widening wall of nervousness forming among businesses and professionals on the impact of leaving the EU.” Economic confidence across the insurance profession is at its lowest level since 2011 and nearly half (48 percent) of those working in insurance expect the economy to deteriorate in 2017, according to CII.

In her speech, May also considered the possibility that the UK could not find a trade agreement with the EU, but suggested that no deal for Britain is better than a bad deal for Britain. The survey shows that some market participants are rather sceptical.

“Without new bilateral agreements there will be obstacles for UK reinsurers to operate in the EU given the latest toughing of supervisory regulations,” said Andreas Gadmer, CRO at SI Re.

Conrad Foa of Foa & Son Corporation noted that “as an EU member, the UK had a competitive advantage when vying for ceded reinsurance from EU members; when the UK is no longer in the EU, it will have to compete in the non-EU marketplace with all its requirements for non-domestic reinsurers.” He pointed to asset and premium deposits and more intensive scrutiny of finances for players based outside of the EU.

But more than a third of respondents (33 percent) were more optimistic and believe that May’s Brexit strategy could actually strengthen the UK as a re/insurance hub.

“The industry has existed for much longer than has our participation within the European market, said Adrian Stewart from Willis Group. “Lloyd's and others have already moved to establish passporting alternatives and any impact upon our industry will therefore be short-term and limited.”

The UK as a re/insurance hub is likely to benefit from a better access to markets outside of Europe whilst maintaining strong links within Europe, believes Andrew McQuade from Kyngswoode Services.

Chris Croucher of AMC Insurance Appointments said that “the UK needs to be seen as a truly international and not just European centre.”

The exit from the European Union may make the UK’s re/insurance industry more international, some think.

“I believe this will open free trade markets thus allowing for a more vigorous insurance hub for London,” said Jack Coleman.

May has said in her speech that the UK should “get out into the wider world, to trade and do business all around the globe. Countries including China, Brazil, and the Gulf States have already expressed their interest in striking trade deals with us."

Manuel Lovell from Oliver James Associates agreed: “It is an opportunity for UK based companies and Lloyd's to show they can adapt, be flexible and flourish abroad in difficult circumstances. Moreover, it is a good time to find new entrants into the London Market and there is no reason you cannot operate a dual platform for most companies in Europe.”

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