The UK government’s attempt to stimulate and protect its ILS and reinsurance market with the introduction of new ILS laws could be too little, too late, as over the long-term Brexit causes a slow disintegration of its well-established reinsurance hub.
Speaking at the 2017 Rendezvous de Septembre in Monte Carlo, A.M. Best Directer Greg Carter, said he expected Brexit to be a negative thing for the London market, but that this impact would take a long time to be felt.
The historic London market is a competitor established and ahead of the game compared to other European markets; it continues to see significant transaction that demonstrates Brexit so far has not caused the reinsurance industry to lose faith with the reinsurance hub.
“In terms of activity in the London market we continue to see movement, we saw AXIS finally hit over the line with Novae recently,” said Carter; “We see progress in terms of Sompos Canopius to private equity, so there still seems to be activity in the London market.
“In terms of Brexit, we may not be any clearer as to what is actually means, but that doesn’t need to say that business doesn’t carry on, we’ve seen a number of companies taking action and continuing to offer coverage to European clients.
“I think initially the concern in London will be that London will lose it’s position as that reinsurance hub.
“What we’re seeing is that no single centre is emerging as a logical competitor to the London market, just given the fact London still has all the major players there and all the key support services the bankers, the brokers, the lawyers, even the rating agencies.”
In an attempt to preserve its financial and reinsurance London hub, the UK government has been trying to stimulate growth for the insurance and reinsurance sector by proposing new laws to enable ILS to more easily transact within the London market.
Those laws are due to go to the final process to become law in coming weeks.
However, concerns remain that the move could be too little, too late, with the backdrop of Brexit potentially discouraging new commitment to operating in the British market, and over the long-term, the A.M.Best director believes the hub will see a disintegration.
“You’ve got that huge infrastructure around you and to dismantle that takes typically a very very long time. So whilst I do think Brexit will be a negative thing for the London market, the main impact will take a long time to be felt,” said Carter.
The A.M. Best director said other issues that would affect the industry over the long-term include the E.U.-U.S. covered agreement, and the impact of the Trump administration on the country’s economy and global trade.
“We saw a covered agreement conclude early this year, with an attempt to reduce the collateral requirements for European companies writing business in the U.S. and vice versa,” Carter explained, “The aim is to lower the collateral requirements that companies face, my perspective is that for a small number of companies that have had to deal with these particular barriers, it’s a positive for them.
“Overall, from a credit perspective though it takes friction out of the business that increases the competition and allows business to flow more freely – ironically that’s a credit negative, it spurs further competition and negative pricing pressure.
“We talked about potential tax reform, that was part of the ticket Trump was elected on, I don’t think that would have a big impact on the reinsurance space.”
He added that broader opportunities for re/insurers could come from stimulus for the U.S. economy and trade globally that would potentially increase insured values, however, given “how difficult Trump is finding things,” he said, “I would expect potential benefits to be much slower and perhaps to a lesser extent.”
Just in the last week we’ve reported that XL Group is shifting its main EU insurance company domicile from London to Dublin, just the latest company but also perhaps the biggest to cite continuity of access to the EU after Brexit as the reason.