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Update: Lloyd's moves to reassure reinsurance buyers after report of Covéa snub

Lloyd's of London has insisted that European insurers can "safely" continue to buy reinsurance from the market's syndicates following a report that French mutual insurer SGAM Covéa has taken some business elsewhere because of Brexit concerns.

The Insurance Insider reported Dec. 13 that Covéa excluded Lloyd's underwriters from a property-catastrophe excess-of-loss treaty at the Jan. 1, 2019, renewals. Citing unnamed sources, the Insider said Covéa has historically placed up to 30% of the treaty, which has a €1.6 billion coverage limit, with Lloyd's syndicates.

The news follows several reports that European insurers are wary of buying reinsurance from companies based in the U.K., including Lloyd's underwriters, because of uncertainty about whether the country's insurance capital regime will be declared equivalent to Solvency II when the U.K. leaves the European Union. If there is no equivalence, there are worries that some regulators will not give the insurers credit for the reinsurance bought from U.K.-domiciled firms.

While not commenting directly on Covéa's reported move, Lloyd's said in a statement emailed Dec. 13 to S&P Global Market Intelligence that the market has given reinsurance buyers "certainty around continuity and security of reinsurance coverage from either Lloyd's syndicates in London or Lloyd's Brussels," even if there is a so-called hard Brexit, where the U.K. leaves without a trade deal, access to the EU's markets or equivalence with Solvency II.

Chain of Security

The statement said buying reinsurance from London-based syndicates is permitted under national rules even if there is a hard Brexit. It also said buyers in Germany and Poland, whose regulators have said they may not give insurers credit for buying treaty reinsurance from the U.K. if the country lacks Solvency II equivalence, will be able to reinsure with Lloyd's Brussels "in the safe knowledge that it is a Solvency II-regulated company, backed by the Lloyd's Chain of Security and sharing the same strong financial ratings as Lloyd's."

The Insider reported that Covéa declined to renew a portion of its reinsurance cover through Lloyd's Brussels, but Covéa contradicted this in a Dec. 19 statement sent to S&P Global Market Intelligence. It said Lloyd's in recent years had been a significant source of reinsurance, for example taking up "a sizeable one-digit percentage share" of its French wind program.

"The repercussions of Brexit on reinsurance purchased from U.K.-based reinsurers by EU-based cedants raises broad legal and regulatory questions that were unfortunately unresolved, by and large, at the time of signing our 2019 reinsurance protection," Covéa said.

"We thoughtfully assessed ways to continue to sign Lloyd's syndicates on a case-by-case basis, based on solutions they were able to offer to the uncertainties around Brexit," it added. "In many cases, the syndicates found efficient solutions to continue business either via Lloyd's in Brussels ... or a sister company inside their group. In some other cases, we declined to sign the offered paper where we considered that the alternative solutions submitted to us lacked legal or financial certainty."

Lloyd's Brussels, which the market set up to ensure continued access to the EU post-Brexit, will be able to accept facultative reinsurance and nonproportional excess-of-loss treaty reinsurance from all European Economic Area countries starting Jan. 1, 2019. Although it initially did not expect Lloyd's Brussels to be able to accept proportional treaty reinsurance until Jan. 1, 2020, Lloyd's announced Dec. 5 that the subsidiary would be able to do so from March 1, 2019, subject to a series of technical requirements.

There are signs that European buyers are avoiding reinsurance from U.K.-domiciled companies. Nicholas Line, chief actuary and director of underwriting operations at Lloyd's of London market insurer Markel International Ltd., told S&P Global Market Intelligence in a recent interview that some European customers were asking to be reinsured by Markel's new German-regulated entity, Markel Insurance SE, at the Jan. 1, 2019, renewals.