The London Market Group (LMG) has urged the UK Government to seek reinsurance equivalence under Solvency II regulations to guarantee London market firms continued access to the EU market after Brexit.
When negotiating its future trading relationship with the EU, the LMG argued that the UK should prioritise the access of EU clients to the range of re/insurance services in the London Market.
A formal reinsurance equivalence determination with the EU, it suggested, would “facilitate the conduct of reinsurance business by UK-based undertaking in the EU by removing or reducing the prospect of barriers to market access at member state level.”
It added that there is “little appetite” amongst LMG members for regulatory upheaval, given that the implementation of Solvency II has already cost the industry around £2.7 billion.
The LMG also recommended that existing equivalence tests should be enhanced to allow sophisticated commercial customers to seek cover for large and complex risks on a cross-border basis from equivalent third countries.
Over £8 billion (€9 billion) of premium is currently bought annually to the London Market by brokers on behalf of EU clients, and over £6 billion (€7 billion) of business is underwritten in London by branches of European operations.
For the most part, UK-based brokers and re/insurers have already activated their contingency plans ahead of Brexit, which have involved setting up new companies in EU27 countries.
However, while these contingency plans have ensured service continuity for London Market clients, the creation of these structures has come at significant cost to the industry.
In the event of a no-deal Brexit, the LMG believes that “the Market’s successful model of centralisation of capital and expertise would be undermined, making the UK a less attractive place to do insurance business.”
But with a new UK government in place, and positions in the Treasury filled, the LMG will be once again reaching out to ministers and officials to ensure they understand the implications of a no-deal outcome to the London insurance market.
“We have built up strong relationships with Westminster and Whitehall in the last several years, and many of them now understand the importance of the London insurance market to UK plc,” said Clare Lebecq, CEO of the London Market Group.
“With John Glen returning as City Minister there is a degree of continuity,” she added, “but we are still seizing the opportunity to reach out to new Ministers so they know what the market is looking for in each possible scenario. We will continue to ensure that the market’s voice is heard on Brexit.”