The specialist Lloyd’s of London insurance and reinsurance marketplace could lose access to both the Polish and German market for treaty reinsurance from 1/1 2019, regardless of its new Brussels subsidiary.
Lloyd’s Chief Executive Officer (CEO), Inga Beale, explained during the company’s H1 2018 earnings call this morning that regarding Brexit, the Lloyd’s market had to take its future into its own hands, adding that European Union (EU) equivalence regarding reinsurance business should be secured as soon as possible, to ensure continuity for clients across the marketplace.
In order to ensure business as normal post-Brexit, Lloyd’s has established a new subsidiary in Brussels, and Beale said that this means that in the case of a no deal Brexit and no EU equivalence being secured, Lloyd’s customers would still have access to markets in remaining EU member states.
However, the outgoing CEO did note that both Poland and Germany are an exception, adding that Lloyd’s is doing what it can to resolve this situation.
Lloyd’s explained that from 1/1 2019 its Brussels subsidiary will be able to write non-life insurance across the European Economic Area (EEA), and it is expected that reinsurance can continue to be written from London after the UK leaves the EU.
Although, in the case of no equivalence, Germany and Poland are an exception, as these countries would not allow cross-border reinsurance with countries not granted equivalence by the EU. Lloyd’s notes that while the UK would meet the criteria for equivalence, it remains unclear when it would be secured.
According to Lloyd’s, while its Brussels unit is licensed to write reinsurance across the EEA, it is currently not in a position to process treaty business through its Brussels subsidiary from Jan 1st 2019, although it is in the process of developing the capability to do this in the future, and is also able to process facultative reinsurance business through the unit from 1/1.
“This means that while we are currently unable to process treaty reinsurance from Poland or Germany, we will be able to process facultative reinsurance from those countries,” explained Lloyd’s.
The fact the Lloyd’s market’s new Brussels subsidiary, which is designed to ensure continuity for clients across the EU post-Brexit, fails to apply for Poland and Germany suggests that establishing a new subsidiary in the EU won’t always solve the problem of having continued access to the whole market, as this will also depend on equivalence.
Numerous insurers, reinsurers, brokers and other re/insurance market participants have set up new subsidiaries to ensure post-Brexit continuity, and it could well be the case that other market players are finding that their new units don’t actually solve the passporting problem, should the UK leave the EU without a deal, and without securing EU equivalence for re/insurance business.
Only time will tell exactly what the operating landscape in the UK and the EU will look like for insurers and reinsurers post-Brexit. Ongoing uncertainty from the UK government and a continued lack of clarity surrounding the financial services sector remains, and it will be interesting to see what solutions the Lloyd’s market, and other players for that matter, come up with in order to avoid any negative implications driven by Brexit.