What impact will Brexit have on General Insurance?
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12-May-16
We have been a member of the European Union for 43 years and, regardless of the emotional arguments for and against Brexit, there are a number of issues that will effect the General Insurance industry, should the UK decide to leave.
As it stands, UK insurance firms have direct access to a single insurance market spanning 28 countries; that equates to about half a billion people. Should we cut ties with the EU, would UK insurance firms be required to open EU branches in order to gain writes to underwrite business in their respective territories?
Aon recently published a report summarising the implications on the GI industry, post withdrawal from the EEA:
- If a UK insurer has no EEA licensed subsidiary, then a separate EEA insurance company would be need to issue locally licensed insurance policies for EEA risk exposures.
- If an EEA insurer has no UK licensed subsidiary, then a separate UK insurance company would be required to issue locally licensed insurance policies for compulsory risk exposures including Motor and Employer’s Liability. All other risk exposures can be insured by non-UK based insurers.
- Under Solvency II, capital relief is automatically granted for cessions to EEA reinsures, but such credits may no longer be available automatically post Brexit. Instead, they will have to be based on the achievement of equivalence, a rating or the provision of collateral.
Whilst insurance and reinsurance companies should expect the extent of their exposure to change post Brexit, there is actually a two year exit notice period, so things won’t transform overnight. In fact, it is assumed that actual negotiations could be extremely protracted, with an even longer period for the agreed changes to take effect. However, in the short term, it is widely agreed that there will be economic volatility in the UK markets.
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