An Aon Benfield publication on the potential impact of Brexit on re/insurers states the London specialty re/insurance centre will remain unscathed and unchallenged by EU departure, due to London-based reinsurers’ not having to rely on single market access to sell solutions to European clients.
This is down to the relative proportion of London Market insurance business from Europe being small, and London re/insurers being expected to find ways to continue to access the single market, in the event the country defaults to a so-called ‘hard-Brexit’ and passporting rights are withdrawn.
Aon Benfield quoted the November 2014 London Matters’ report, which indicated an annual commercial re/insurance London Market transaction of around £45 billion, of which 16% comes from continental European markets; total volumes were split £26 billion to Lloyd’s and £19 billion to London-based companies.
Lloyd’s has since stated the European Economic Area (EEA) accounts for 11% of its gross premiums written (GPW), or £2.9 billion.
However, the real figure likely to be affected by loss of access to the single market comes to just £0.8 billion of non-MAT business written on a cross-border basis (4% of GPW) and Lloyd’s has been actively engaging with the UK government to preserve its passporting rights to protect the entirety of its European market share.
These figures show that for most part, UK reinsurers will continue with business as usual, with only a small percentage of income directly derived from the single market – and this income is expected to be preserved regardless of the country’s access or departure from the market.
The sponsor of the London Market Group’s ILS Working Group, Malcolm Newman, has stated that Brexit doesn’t mean the London ILS legislation development should be delayed, as these are reinsurance solutions that don’t need single market access for EU customers to be able to buy them.
More significant than UK reinsurers’ access to the single market is the knock-on effect of Brexit to the already fragile global economy and capital market volatility.
For reinsurance buyers, the Aon Benfield analysis stated this second order effect is more relevant than the market access issues associated with the lack of clarity around the UK’s future trading relationship with the EU, and as such, “the effects of current investment market volatility, currency fluctuations and increased economic uncertainty are being closely monitored.”