The host of new European hubs established by re/insurers in preparation for Brexit have already begun to “sap business” away from the UK market, leaving it “less important than it was before,” according to a panel of industry experts.
Speaking at Fitch Ratings’ Insurance Roadshow 2019 event in London, the panellists offered a resounding ‘no’ to the question under discussion: ‘Could the UK Insurance Sector be a Net Winner from Brexit?’
Olga Tschekassin, Economist at Swiss Re, noted that, while setting up new branches in Europe will mitigate the impact of Brexit on UK re/insurers and their clients, it may have broader negative consequences for the UK market as a whole.
“What we are seeing is actually market fragmentation in a way,” Tschekassin said.
“If you think about how much effort and how much money the companies have put into setting up these branches and this business, it is very difficult to imagine – even if we get a very close alignment with the EU – that those branches will not take over the EU business.”
Huw Evans, Director General of the Association of British Insurers, added that EU branches will “develop a life of their own” as re/insurers look to make the most of the huge investments that were required to set up these operations.
This situation will be aggravated further by regulations that require EU branches to be fully staffed and run by senior people, he claimed.
“Naturally, once they are there they will want to make a success of the unit, that’s human nature,” said Evans.
As a result, these new European subsidiaries will very quickly “sap business away from London” due the nature of the contracts that will be written from them, not just managed, Evans explained.
“That is inherent in the process, it’s not a choice that firms have,” he said. “It’s inherent in what is happening.”
Tschekassin observed that this process “has already started” even though no conclusion has yet been reached about the terms of the UK’s departure from the EU, and whether it will even happen at all.
“This market fragmentation has already taken place, and this is something that will affect our UK growth,” she said. “It will affect the insurance industry, and it means also that the UK insurance industry has become relatively less important than it was before.”
Nevertheless, the panellists agreed that it was beneficial to London that re/insurers had not coalesced around a single European location as the centre for their post-Brexit operations.
Many companies have chosen to relocate to Dublin ahead of Brexit, while others have chosen Brussels or Paris. Meanwhile, Luxembourg for Finance recently reported that 11 global re/insurers selected the country as the location for their new European headquarters last year.
The experts maintained that this diversity would leave London uncontested as the dominant financial hub in Europe.
