Following the "Brexit" vote in June 2016, insurers that do not have a subsidiary outside the UK have faced significant pressure to reassure their clients in the rest of the EU that they will continue to be able to provide insurance services. These insurers have had to balance the desire to demonstrate their continued support to EU policyholders with the need to limit unnecessary investments in establishing any kind of new operation before details of new trading arrangements between the UK and the EU emerge.
A.M. Best has analysed companies' announcements as they provide details of their contingency plans. In a new Best's Special Report - titled "Location, Location, Location - Insurers Unveil Choices for European Offices" -, A.M. Best notes a number of market participants have taken decisive action by announcing the formation of new EU subsidiaries in order to ensure there is no interruption to the insurance services they provide to European clients. A.M. Best's analysis over the past few months reveals that Ireland, Luxembourg and Belgium have been among the most popular domiciles.
However, while these three domiciles are emerging as key locations, no single city necessarily features as a major European insurance hub. Considerations when selecting a location have included proximity to clients, the ability to attract talent, the existence of a branch in a particular location, as well as the local tax regime. A.M. Best expects that London will retain its status as one of the world's leading insurance centresand an important insurance hub.
The long-term impact on the UK insurance sector will be determined in the detail of the negociated trade deal that will come into effect following any transitional period. A consequence of the UK leaving the EU is that insurers domiciled within the UK will no longer be directly subject to Solvency II regulation. However, A.M. Best expects the UK to seek and be granted regulatory equivalence, particularly given that the PRA (Prudential Regulation Authority) - UK's financial regulator -, is considered to be a strong regulator that has been strict in its implementation of Solvency II.
Much uncertainty remains, with key issues surrounding Brexit such as the shape of future insurance regulation, how to maintain access to EU business and talent and, also, the potential transfer of business. The UK's decision to leave the EU has resulted in considerable uncertainty regarding the country's economy and, in the medium term, it could impact economic growth in the UK and the EU. Furthermore, any economic downturn could have a negative effect on insurers' premium volumes due to a reduction in demand for both life and non-life insurance.