Ever since the big vote to exit the EU in June 2016, key players in the UK insurance market have been reacting and responding to the various Brexit implications. Many UK and EU insurers are understandably very concerned to make sure they maintain their market access to EU customers and minimise any disruption to trade in a post-Brexit environment. The issues around the loss of EU passporting rights, which currently permits cross-border business without incurring local operational costs, and significant regulatory changes are perhaps the principal considerations for all insurers.
Although we are now that much nearer to the planned Brexit/Transitional Period date in March 2019, there is still- that which business hates- uncertainty over the precise details of the exit and what the future trading landscape will be.
So, who has been making contingency plans?
It appears that the non-life insurers will be affected by Brexit a little more than the large, UK life insurers and, consequently, they are the ones who have reacted earliest in their planning. It was noticeable that Lloyd’s and various London Market players were among the very first to move to establish new subsidiary operations within the EU zone and many LM companies will also seek to write business through Lloyd’s Brussels of course. At this stage, according to its website, Lloyd’s aims to be ready to underwrite European Economic Area (EEA) risks by 1st January 2019 and other LM companies, naturally, will be targeting the same date for their trading to commence.
The choice of EU domicile for these London Market subsidiaries has been considerably varied with most opting for Luxembourg, Brussels and Dublin as locations of preference. As well as writing new business, many non-life insurers with existing EEA risks will also seek to transfer live policies to these new entities under a Part VII transfer via which process business is moved from one legal entity to another, for example- http://www.hiscoxgroup.com/about-hiscox/brexit.aspx. The large life insurers tend conduct UK domestic business only and very likely have subsidiaries in one or more EU countries already, removing the need to set up new entities.
On regulation, insurers are weighing that up too. Hard to imagine after years of painful implementation but, if we do leave the EU Single Market, UK-domiciled insurers will not be subject to Solvency II regulation. It is anticipated that the UK would seek equivalence under Solvency II and would likely succeed in achieving this due to the UK regulator, the PRA, being particularly diligent and strict in its application of Solvency II. As we approach the transitional period, the regulators and policy-makers are still expecting significant changes to their rules and processes once the Withdrawal Agreement in concluded- this should be closely monitored and it is wise for businesses to optimise their plans during the transitional period rather than consider it a convenient reason to hit the pause button.
So, what have we seen in the actuarial recruitment world to reflect these Brexit implications?
Well, at this point, specific Brexit-related recruitment needs have been somewhat limited but we can expect that to change as the full implications for insurers emerge. Yes, there is already project work surrounding Part VII transfers for some of our clients and certainly that will be speeding up as we get closer to the exit date. Some of our clients are currently going through the process of planning & staffing up in their newly-created EU offices and either redeploying staff through secondments and back-filling the vacant roles or seeking to hire talent in the local EU markets. It is interesting to note that although sourcing local talent was one factor in determining the location of their EU offices, it was probably the least important factor after client proximity, business-friendliness and the local regulatory framework. With time of the essence, a benign regulator is essential to the swift establishment of new operations and therefore the dominant factor in deciding where to set up shop.
In a market that is already very busy with the regular pricing, reserving, capital and transactional work, there is sure to be a lot more Brexit-related project work on the horizon. Insurers large and small will have to deal with the inevitable regulatory changes at the very least and it is largely the political go-slow that has held up a more aggressive approach to hiring more resources so far. We anticipate that permanent and contract hiring will get considerably stronger towards the end of 2018 and beginning of 2019- so we can all expect to be even busier than we are already!
Article written by Michael Doherty, Associate Director – General Insurance