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Insurers, brokers adjust to stem Brexit losses

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Insurers, brokers adjust to stem Brexit losses

SAN ANTONIO — Britain’s decision to exit the European Union will change how London market insurers and brokers service EU policyholders, but many firms have established separate entities to ensure they will still be able to write the business, a Lloyd’s of London executive said.

The decision to leave the political and trade bloc, which was made in 2016 during Britain’s so-called Brexit referendum, means that companies in the United Kingdom — including insurers — will be leaving a market with a population of 517 million and an economy with more than $17 trillion in gross domestic product, said Vincent Vandendael, chief commercial officer at Lloyd’s.

“It’s a big consumer market that the U.K. will be leaving … but these are just numbers. What’s really also important are the trading rights. The EU has trading rights with over 75 countries in the world, and when you leave a bloc like the EU you lose access to those trading rights,” he said during a session at the Risk & Insurance Management Society Inc.’s 2018 convention in San Antonio.

In addition, Lloyd’s and other U.K. reinsurers will lose the benefit of the reinsurance covered agreement that the EU negotiated with the United States to lower capital requirements of European reinsurers operating in the U.S., Mr. Vandendael said.

Lloyd’s writes €4 billion ($4.95 billion) in gross written premium related to EU business, he said. It has estimated that if it did nothing, it would be able to continue writing about one-third of that business — mainly reinsurance — on the same basis; it would lose one-third of the business; and it would only be able to write another third if it were approached by a customer.

To ensure that it will continue to have access to EU business, Lloyd’s established a subsidiary, Lloyd’s Insurance Co. in Brussels.

Other London market insurers have also set up subsidiaries in various EU countries, Mr. Vandendael said.

“Everybody had to do something, and obviously that’s a duplication of effort and duplication of costs, etc.,” he said. Lloyd’s transferred €130 million from the Lloyd’s central fund, which supports the Lloyd’s market, to Lloyd’s Brussels, he said.

The company has the same financial rating as Lloyd’s and also is supported by Lloyd’s central fund, Mr. Vandendael said.

The unit will begin operating on Jan. 1, 2019. Lloyd’s Brussels will delegate underwriting authority to syndicates in London, or the syndicates can delegate underwriting authority to a service company or Lloyd’s coverholder in Europe, he said.

The policies will be issued by Lloyd’s Brussels — though they will be co-branded with the syndicate that is underwriting the risk — and the risk will be 100% reinsured with the syndicate underwriting the risk, Mr. Vandendael said.

Brokers will also have to adjust, he said. If choosing to operate as a wholesale broker, they will just have to establish or continue relationships with retail brokers in the EU. But if they want to operate as a retail broker and market their services to EU policyholders, they will have to set up an operation somewhere in the single market.

 

 

 

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