BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.
To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.
To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.
Insurers in the United Kingdom, the European Union and the United States face what looks to be an extended period of uncertainty after the U.K.'s vote to leave the E.U.
The June 23 referendum, in which 52% of voters decided to leave the economic, political and trading bloc, shocked financial markets around the world, resulting in two days of major declines. Insurer and bank stocks helped the markets regain some of the lost ground last week.
Now insurers and intermediaries must weigh whether to shift operations, redomicile or wait until the picture becomes clearer before making any decisions, experts say. Amid fears that other countries also might leave the bloc, Scotland was investigating how to remain in the E.U. despite the overall U.K. vote.
U.S. insurers and brokerages that use U.K. units as their European hubs also will seek clarity on future rules.
One day after the vote, U.K. Prime Minister David Cameron, who spearheaded the campaign to remain in the E.U., announced his resignation effective in October, by which time he said the ruling Conservative Party likely would have a new leader.
He did not invoke Article 50 of the Lisbon Treaty, which would start the two-year clock to formally leave the E.U., leaving that to his successor.
There also is a chance that the U.K. Parliament, which earlier pledged to abide by the result, could overturn the decision.
In the interim, the U.K remains an E.U. member, and politicians and lobby groups said they hoped to continue their access to the single market for goods and services, among other things.
“It is obviously quite a fluid” situation at the moment, said Stephen Netherway, partner and head of the insurance sector group at law firm CMS Cameron McKenna L.L.P. in London, but he said many insurers have U.K. exit contingency plans.
“Single-market access is vital” for insurers in the United Kingdom that trade with Europe, Mr. Netherway said.
The question of whether insurers will be able to continue to trade on a single passport basis is “the big elephant in the room,” said James Bateson, global head of financial institutions at Norton Rose Fulbright L.L.P. in London.
While it was uncertain over whether passporting rights could be preserved, Mr. Bateson said U.K. insurers may be required to put up collateral in E.U. member states — as they already must do in the United States.
The E.U., however, has been working to persuade the U.S. to reduce collateral obligations on E.U. insurers, so philosophically the bloc may have a problem with asking U.K. insurers to post large collateral sums, he said.
In an open letter published in the Financial Times, Lloyd's of London CEO Inga Beale said how the British exit, known as Brexit, will affect access to the single market is “the most important question for chief executives throughout the sector.”
“Lloyd's will press ahead by implementing our contingency plan, which is designed to ensure we can continue to trade in our key European markets,” she said.
Still, Ms. Beale stressed that swift progress on single-market negotiations is vital.
Labor leaders reportedly warned, however, that Britain would not be allowed to “cherry-pick the bits you want” on single-market access. Several E.U. leaders expressed similar sentiments.
In a statement, International Underwriting Association CEO David Matcham said passporting rights are “vitally important” to the group's London-market members.
“Preserving this advantage must be a top priority in the exit negotiations,” he said.
Currently, insurers domiciled in an E.U. member state can use the so-called passporting rights to sell their goods throughout the E.U. without being regulated by each country.
Non-E.U.-domiciled insurers and brokers with bases in London likely will review whether to redomicile to an E.U. member state to have certainty that their ability to passport will be preserved, Mr. Netherway said.
Many large, multiline insurers currently have just one headquarters in an E.U. member state and use passporting to write business throughout the trading bloc, said Ivor Edwards, European head of corporate insurance at Clyde & Co. L.L.P. in London. Many insurers that have their base in the U.K. are considering setting up in other European countries to continue to access European markets, he said.
It is “clearly a long runway” before the future nature of the U.K.'s relationship with the E.U., and its effect on insurers, will be known, said Thomas Dawson, a partner at Drinker Biddle & Reath L.L.P. in New York.
It is “too soon to say what the positive or adverse effects will be” on insurers, he said.
Many insurers that use the London insurance market as “a jumping-off point” into the E.U. also have platforms elsewhere in Europe or in Bermuda, which already has regulatory equivalence with Solvency II, Mr. Dawson said.
The effects of the Brexit vote spread to Australia, where Sydney-based QBE Insurance Group Ltd. said in a statement that the U.K.'s decision to leave the E.U. “may require a revised approach in relation to approximately £500 million ($683.8 million) of insurance and reinsurance premium” that QBE gets through U.K.-regulated entities under the current E.U. passporting rules.
“Should E.U. passporting rules not be preserved, QBE will be required to renew this business into newly established licensed E.U. entities,” QBE said.
Still, QBE said the minimum two-year withdrawal from the E.U. would give it enough time to ensure its commitments to European customers are uninterrupted.
Mr. Dawson said there even could be some benefits to U.K.'s withdrawal from the E.U., including building a market for insurance-linked securities without having to wait for E.U. approvals.
The U.K.'s vote to leave the E.U. may “not be all doom and gloom” for the insurance industry, he said.
The United Kingdom's vote to leave the European Union looks to have a greater immediate effect on insurance brokers than insurers as the U.S. market has largely taken a business-as-usual stance following last month's referendum.