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5 things you need to know about 'Brexit'

Posted On: Jun. 24, 2016 12:00 AM CST

It remains unclear exactly how insurers and policyholders will be affected by the United Kingdom's vote to leave the European Union, but several key issues in the exit negotiations between British and E.U. officials, along with factors that could affect the status of the London market, will need to be addressed.

• Passporting. Insurers and brokers authorized in one European Union member state are able to offer services throughout the trading bloc without the need to obtain licenses in other E.U. countries. While the end or restriction of passporting might limit competition for U.K.-based insurers in their home market, it could create additional red tape and expenses for insurers that write E.U. business from the United Kingdom.

• Solvency II. The risk-based capital requirements, which have been years in the making, were introduced earlier this year. Aimed at protecting insurance buyers, the rules apply to capital, governance and reporting for insurers. Several insurance markets outside the European Union have introduced capital requirements equivalent to Solvency II to enhance their ability to write E.U. business. According to Marsh & McLennan Cos. Inc., it's unlikely that U.K. regulators would want to significantly depart from the Solvency II requirements.


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European insurance snapshot


• London as a hub. The London market, and Lloyd's of London in particular, has been an international insurance center for more than a century and underwrites business from around the world. The European Union, however, has created a single market for insurance that many international insurers have sought to access via their London operations or by using their London operations as their European headquarters. Whether they will choose another European financial center, such as Dublin, Frankfurt, Paris or Zurich, remains to be seen.

• Mergers and acquisitions. In a related issue, foreign insurers have spent big on London market insurers in recent years to access both London market and E.U. business. While the prospect of accessing London will likely remain attractive, the need to buy an existing platform may not be so compelling for international insurers if their main target is the European Union. On the other hand, if the plummet in the value of sterling that followed the so-called Brexit vote lasts, British insurers will be cheaper to buy.

• Intellectual capital. Concerns over immigration were at the heart of the Brexit debate. Under E.U. law, citizens of E.U. nations are free to live and work in other E.U. countries without the need to acquire work permits. While London's current pre-eminent position in international insurance means that much insurance intellectual capital resides in Britain's capital, it may prove harder to attract expert personnel from other insurance centers to London.