Brexit: It’s crunch time for the UK Insurance market…and Ireland awaits

//Brexit: It’s crunch time for the UK Insurance market…and Ireland awaits

Brexit: It’s crunch time for the UK Insurance market…and Ireland awaits

Despite recent reports that Ireland may not get the big ‘Brexit dividend’ it might have envisaged from UK banks and financial services companies relocating operations here, one London City lawyer argues that Ireland is still well-placed to be the new base of choice for the UK insurance sector.

Written by Stephen Netherway, Partner and Head of the Insurance Sector in the UK for London and European law firm, CMS.


The UK has proceeded to trigger Article 50 and hence put in place a formal motion to divorce from the EU. However it still remains as opaque as it did nine months ago as to what the landscape of the UK’s relationship with the rest of the EU, including Ireland, will look like at the conclusion of that process.

We are still no clearer whether trading terms will or will not be tariff free or whether the “cleanest” of Brexits will precipitate.

For the financial services industry in the UK, and specifically insurance, the clarity of the position (or the lack of same) is no different from nine months ago, save that the well-publicised mood music of the British politicians suggests ongoing access to the single market as it currently exists for the UK financial services industry is not looking a great bet.

This does not mean the UK insurance market is looking down the end of a barrel of a gun or that its entire future is in doubt.

It is of such a significant size and importance, in the solutions and capacity that it offers, for this not to be a cliff edge scenario. However it is a very competitive market, a soft market with squeezes on premiums chargeable and margins under pressure. Cost and expense matters.

The million dollar question (literally!) is how and where should businesses operate after the UK exit is finalised?

Immediately after the Brexit vote it was recognised that Ireland offered a real alternative for hitherto UK-based financial institutions who might wish to preserve and service existing distribution chains in the event of a ‘clean’ or ‘hard’ Brexit. Ireland has a recognised international financial services sector and has proven ability to service many global multinationals,

That attraction remains. For some, such as Lloyd’s of London, the thinking on the future has firmed up and Lloyd’s itself reported in January this year that it would make a move into Europe because of Brexit and the destination for that move is expected to be announced imminently.

Stick or twist?

However, for many such businesses, final decisions on whether to to uproot from London and to move or to establish alternative commercial bases in Ireland or other EU countries in order to preserve single market access are still to made.

Significant cost turns on either choice and the right call really can only be determined from hindsight – seeing how Brexit pans out.

Call the wrong option and there will be wasted capital cost and competitive disadvantage; call it right and the reverse, happy scenario applies

The clock is now really ticking for those who have yet to make their final call. To start up from scratch or effectively rebase one’s business is a 12-18 month timeline project – about the time that commentators believe that (for political and practical ratification reasons) the concluded Brexit deal or exit terms need to be clear.

No business wants to be in a wrong or unnecessary place at the conclusion of that process.

Taking the UK insurance sector as a specific example, some considerable analysis and planning has unsurprisingly been carried out by affected businesses. Many insurers, reinsurers and intermediaries have consulted legal and other advisors to work through and ponder upon the legal/regulatory implications of change or no change. Arguably the position of each has been seen to be slightly different.

Options for ReInsurers

Reinsurers are aware that the EU has accepted the concept of ‘equivalence’ for those reinsurance markets that meet EU-acceptable regulatory and solvency standards. That is how the markets in Bermuda and Japan in particular have access and interaction with the EU reinsurance market.

The UK has in recent times been at the vanguard of a gold standard approach to regulation, and Solvency II has been implemented in the UK.

The basis for continued acceptance of London as a reinsurance market place appears to be in place already – and arguably the provision of reinsurance to continental reinsureds is as much as a service to them as it might be thought a benefit to the UK market. With a fair wind might reinsurers who continue to base themselves in London be okay – whatever the terms of Brexit?

Options for Brokers

Similarly for brokers, many have been analysing whether they actually need passporting rights. For the broker who receives enquiries from abroad from just one or two other EU jurisdictions, strictly they may not need passporting rights at all if the local EU country laws respectively permits – and will continue to permit – that mode of current engagement.

If needs be then yes, an EU subsidiary or refocus in another EU-based business may be needed, but as an intermediary that will not require Solvency II capital outlay.

Options for Direct Insurers

For the UK-based direct insurers however, the options are considerably more limited. Without a politically delivered agreement that effectively reflects passporting rights, then continued business as usual looks impossible without the creation of new EU-based subsidiaries and/or movement of the focal base to another EU country. To stick or twist is indeed the real dilemma they currently face.

Some businesses have begun to make decisions and some have decided to relocate or set up alternative location-based business structures: in March, AIG announced plans to open an insurer in Luxembourg to write business in the EU and Switzerland once the UK exits the EU, but by and large there is yet to be any critical mass reached din such decision taking.

In the UK we are certainly beyond the beginning of this decision-making process, certainly not at its end of the process, but with the practical point of no return for many insurers now being reached, we may be fairly sure we are at the end of the beginning.

Can Ireland Win the Battle?

All the reasons why Ireland offers an attractive alternative to service clients and to maintain distribution/policyholder networks remain unchanged from all those reasons articulated the day after Brexit.

Just a couple of weeks ago, Sylvia Cronin, director of insurance supervision at the Central Bank of Ireland delivered a speech revealing that at least 30 insurance firms operating in the UK are interested in Ireland as a base for their post-Brexit operations.

As the UK marketplace finally works through its thinking and makes it final decisions, expect to see shortly whether Ireland has won the battle with other EU countries (and indeed others such as the US) to be the post-Brexit insurance base.

By | 2020-12-18T02:10:25+00:00 March 29th, 2017|Company Law|0 Comments

About the Author:

Stephen Netherway is a Partner in the international law firm CMS, based in London and Head of the UK Financial Institutions Insurance Sector.