Brexit has been in the news for the last three years. Most recently, the EU granted a three-month or less flexible extension to January 31, 2020. A deal has been agreed upon by British Prime Minister Boris Johnson and the EU, but the current Parliament has not signed on yet. Parliament’s request to review the deal further is the reason behind the current delay from October 31, 2019. As a result, in December there will be a general election in the UK to reshuffle the Parliament. Boris Johnson is hoping he will get a majority, which he can then use to pass the deal. The EU, however, does not want to renegotiate the deal a third time.
What does this mean for US insurers? Not much—unless they do business in Europe or place risk in the Lloyds Market. Some carriers have been setting up EU subsidiaries to continue to allow them to do business once the UK is no longer part of the EU. Some will sell their legacy closed blocks of business in Europe, while others will move to buy or reinsure closed blocks of business in the EU. Fortitude Re, owned by AIG and PE firm Carlyle, currently houses AIG closed books of business and may buy or reinsure closed books in Europe. P/C policies with long-tail claims resulting from workers’ compensation for work-related accidents, employers liability, or medical malpractice are the most likely to change hands between carriers or reinsurers that either want to get out of the UK or get out of the EU. There is less activity driven by Brexit on the life side since those policies are usually written by domestic subsidiaries, but selling closed-block life business is certainly happening occasionally in Europe, just as it is happening in the US. Carriers may sell their UK life closed block business if it is small relative to their total book of business.
As far as Lloyds, $75B of business is shifting to rival financial centers in Europe. Lloyds opened a Brussels, Belgium subsidiary in early 2019. The Lloyds syndicates, member insurers that underwrite policies in the Lloyds market, intend to honor all policies for EU clients. However, without passporting rights that UK insurers were given while the UK was in the EU, each of the 27 EU regulators must give explicit approval for that carrier to operate in each specific country. If a US insurer used London as a gateway to the EU, it must set up separate subsidiaries with appropriate staff and operations. US carriers also must reassess how they place specialty risk that historically was placed via the London market.
Brexit will continue to evolve over the next weeks and months. US carriers need to pay attention to what’s occurring and respond appropriately.
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