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No sign yet of 'Brexit slump' for London insurers, says trade body

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No sign yet of 'Brexit slump' for London insurers, says trade body

There are no indications so far that London-based international insurers are suffering a "Brexit slump," according to their trade body.

The International Underwriting Association of London, or IUA, also said London insurers are seeing growth opportunities from the new subsidiaries they have set up in the so-called EU27 to ensure that they can still access European markets after the U.K. leaves the European Union, currently scheduled for Oct. 31.

The IUA's annual statistical report, published Oct. 10, shows that total premium income for the London company market — international insurers outside Lloyd's of London — increased by 8.1% to £28.44 billion in 2018 from £26.31 billion in 2017. Premium written by these companies in London increased 6.7% to £19.56 billion from £18.33 billion, while business written outside London but controlled by insurers in the city grew by 11.2% to £8.88 billion from £7.98 billion.

Within the controlled portion, business written in Europe, excluding the U.K. and Ireland, has increased by 9.2% to £4.89 billion from £4.48 billion.

The data was compiled with statistics from 64 companies, including the 61 IUA members.

While noting the increase in London-controlled business written in Europe, the IUA said in its report that the "quite healthy" 6.7% growth in London-underwritten business showed that "so far, at least, the company market shows no signs of a Brexit slump."

European boost

Speaking to journalists about the report, IUA CEO Dave Matcham said the association expects the European portion "to be an even higher share of the controlled book" when it releases the 2019 figures in 2020. This is because London-based insurers will start underwriting more European business through their new subsidiaries in remaining EU countries, although the IUA expects this to be partly offset by European business of EU-controlled companies being retained by the parent entity, rather than being reported in London.

According to Matcham, IUA members have set up over 30 EU subsidiaries in response to Brexit. He noted that the 2018 figures in the latest statistical report do not capture the subsidiaries in their fully active state.

"It is the very beginnings of those operations, because they really began in earnest [in the 2019 calendar year]," he said.

Aside from being a defense against the loss of financial services passporting, which allows insurers to trade throughout the European Economic Area on their home country license, the subsidiaries could also be a source of new business. Matcham said some members are using the new divisions "as a prime EU hub," adding: "They wouldn't have seen this business before because it wasn't coming to London, but now they are local they are seeing that business."

Equivalence challenges

A potential problem for IUA members that write reinsurance is that it is not clear if or when the U.K.'s insurance capital regime will be considered equivalent to the EU's Solvency II rules after Brexit. Regulators from some countries, including Germany and Poland, do not allow insurers to take full credit for reinsurance bought from companies in non-equivalent countries.

Matcham said he had heard "one anecdote of a member thinking they may have to transfer business to Bermuda if [a] no-deal [Brexit] results in no equivalence," and that companies with subsidiaries in Bermuda or Switzerland, which both have Solvency II equivalence for reinsurance, could use them to write that business.

But he added that problems would only hit companies that had not set up an EU subsidiary, and that the equivalence problem was "not really coming up as an issue at the moment."