Although the lion’s share of Gibraltar’s insurance market business comes from the UK, A.M. Best expects companies to be largely unaffected by the loss of European Union passporting rights post-Brexit. There are, however, a number of firms that will need to make contingency plans or cease to underwrite business in the other 27 European Union countries.
In a report titled ‘Gibraltar Insurance Market Enjoys Solid Performance but Brexit Creates Uncertainty’, A.M. Best stated that Gibraltar is a member of the EU by virtue of UK membership, and when this is relinquished, it will also lose any benefits of EU membership, such as passporting rights.
The UK government announced last week that a draft political declaration had been agreed upon by the EU and UK.
The document offers a nebulous, vaguely positive expansion to the recently published 585 page withdrawal agreement in regards to post-Brexit equivalency for the UK financial sector.
Equivalency allows for cross border trading between markets that choose to recognise one another’s standards, and is currently used by the U.S and Switzerland.
A.M. Best observes that overall earnings for Gibraltarian insurers are good and the market has consistently generated a return on equity (ROE) in the high single digits, helped by a relatively high level of underwriting leverage.
Earnings have been supplemented by other income and modest investment returns.
“Although market conditions are challenging, there are some potential positives for earnings,” said Catherine Thomas, Senior Director, A.M. Best.
Since the publication of this report, Spain’s secretary of state for the EU, Marco Aguiriano, has accused the UK of threatening to “stop the clock” on negotiations and force May and other EU leaders to come back in December.
The problem has arisen from the introduction of a clause into the withdrawal agreement that would see Gibraltar covered by a future trade deal negotiated with Brussels.
The UK has also been accused by Spain of “treachery” and acting “under the cover of darkness” in an escalation of a war of words over the future of Gibraltar that risks derailing Theresa May’s Brexit deal.
“We’re worried because this paragraph, which was introduced almost treacherously and under the cover of darkness, could be used by the UK in the future to argue that a future agreement between the EU and the UK could be applied to Gibraltar without necessarily requiring the prior agreement of Spain,” said Aguiriano.
May has since stated that she is “confident that on Sunday we will be able to agree a deal for the whole of the United Kingdom family including Gibraltar.”
