Artex
Following the Brexit deal, Mike Matthews of Artex says that UK intermediaries will look to create suitable EU-based partnerships, to enable them not only maintain but to grow their EU client portfolios in the years ahead
How has the outcome of the UK-EU Brexit deal affected the captive insurance industry?
As financial services were never part of the Brexit agenda, the only real effect for the industry as a whole from the deal has been to create certainty for all stakeholders. For the captive industry, this certainty of outcome has simplified the location choices for example EU/non-EU/UK. Some European domiciles now have clear territorial advantages such as Malta and Luxembourg for EU risks and Guernsey and Gibraltar for UK risks.
But the key challenge will be for those EU-based direct writing captives who applied for the UK’s Temporary Permissions Regime (TPR). While they can still continue on a Financial Ombudsman Service (FoS) basis, they now need to appoint a local head of overseas branch and decide if they want to continue writing business after the current three year TPR period expires. If so, they will need to apply to the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) for a full UK branch licence before the end of the three years which can be a time-consuming and costly undertaking.
How well prepared were UK insurance entities for Brexit?
The majority of large UK-based carriers and brokers were well prepared for Brexit having already created EU-authorised entities in locations such as Dublin, Luxembourg and Brussels over the past two years. Prior to the end of the transition period, issues remained with the smaller intermediaries, niche managing general agents (MGAs) and boutique insurers in denial about the regulatory changes and/or what the operational implications may be for their businesses in the new year.
Outside of establishing an EU presence or partnering with an existing EU regulated entity to create a third-party solution, those entities without a post-Brexit plan will need to wait to see if an equivalence framework can be agreed with the EU similar to the 2017 EU/US deal — which took 20 years to negotiate.
This option can now be addressed by the UK/EU governments now that the UK has left the EU, In addition, any future bi-lateral agreement between the UK/EU would require the UK to maintain the current Solvency II rules, which would be contrary to the PRAs plans to consult with industry regarding possible changes to the UK rules after 31 December.
Will there be lots of tie-ups in Europe in the future?
Intermediaries have the option to establish their own regulated subsidiary in the EU post-Brexit. However, unless a substantial element of the operation can be outsourced to an EU regulated insurance manager, for example, Artex — where economies of scale can be achieved to reduce cost — this option comes with both high cost and high ongoing resource commitments.
The alternatives for UK brokers, looking for more cost-effective EU solutions, are either to partner with an existing EU regulated broker or by accessing a turn-key solution such as Artex’s Broker PCC model.
Following the Brexit deal — which creates certainty — we believe that UK intermediaries will look to create suitable EU-based partnerships, to enable them not only maintain but to grow their EU client portfolios in the years ahead, instead of opting to create their own ‘high-maintenance’ subsidiary operation.
