Brexit will be challenging for insurers, reinsurers and brokers but in general they feel well prepared for the range of possible outcomes as the Oct. 31 exit date looms.
It is still unclear whether the U.K. will leave the European Union with or without a basic agreement on its future relationship with the bloc. U.K. Prime Minister Boris Johnson insists his country will exit the EU at the end of October with or without a deal, but his ruling Conservative Party has lost its majority in Parliament, and lawmakers opposed to a disorderly exit have succeeded in passing rules intended to block a no-deal Brexit.
The biggest disruption for the insurance industry is that, under any kind of Brexit scenario, it will lose financial services passporting, which allows companies to trade across the European Economic Area using only the licence from their home regulator. Many global insurance groups were using London as their European headquarters, including American International Group Inc. and QBE Insurance Group Ltd. A big concern with the loss of passporting is that, where companies had written cross-border insurance policies whose duration straddled the exit date, they would suddenly be rendered unable to pay claims or collect premiums on those policies.
Well prepared
However, many affected companies have now established subsidiaries in EU countries or the U.K., to ensure they can continue to access business, and have transferred any affected business to those new companies to avoid disruption for policies that expire after the U.K. departs the EU.
Simon Harris, global managing director, insurance funds and asset management at Moody's, told S&P Global Market Intelligence at the annual reinsurance Rendez-vous in Monte Carlo that insurers and reinsurers had been planning for Brexit "for quite some time" and that in terms of what drives Moody's ratings of these companies, "Brexit hasn't really risen to the level of being a concern."
"You have got to deal with it, you have got to be ready for it and it is going to be somewhat traumatic I'm sure, but compared to the other things reinsurers have to worry about, you can get your hands around [Brexit] a bit easier," he said.
Speaking to journalists in the run-up to the Rendez-vous, Graham Coutts, senior director, insurance ratings at Fitch, said the rating agency was not expecting to change any reinsurer ratings as a direct result of Brexit. "Most companies have already put in place ways to mitigate the impact of Brexit," he said.
Talbir Bains, CEO of London-headquartered underwriting agency Volante Global, said in an interview at Monte Carlo that because his company has a subsidiary in Sweden and that the insurers providing Volante with capacity have put in place contingency plans, "we have not felt any consequence at all of Brexit." He added: "Whatever outcome lies in store, we are well set."
Working it out
While many feel that the industry is prepared, a challenge is the lack of clarity about exactly what will happen and when. Steve Hearn, CEO of wholesale insurance and reinsurance broker BGC Insurance Group, said for brokers handling international business solely from London, "continued uncertainty is incredibly unhelpful" because "without any question, business has left London."
He also pointed out that all firms had had to spend money "preparing ourselves time and time again for an exit" without certainty about substance or timing, which was "not helpful."
But he noted that brokers with a more international setup were well placed. "My job is not to find the customer the best answer in London. My job is to find the customer the best answer," he said.
He also described the insurance industry, the U.K. and the City of London as "resilient." He added: "Whatever happens, and your guess is as good as mine, we will work it out."
