We all know Brexit is coming… and now we even know it’s going to be a “hard” Brexit… but what does this actually mean for your business?
While many big companies have revealed their plans to make Brexit-motivated moves such as Lloyd’s of London’s plans to set up an EU base and Hiscox admitting it will look at its own European operations, for the average smaller insurer and broker there may be an assumption that it’s business as usual and “this doesn’t affect me.”
Indeed in some cases that may be true – but as Paul Brierley, Building Block CEO, explains, it won’t be true for all.
“A lot of smaller brokers trading solely in the UK and using UK-sourced capacity, it may not affect them in any large manner – it’s even unlikely to do so,” he told Insurance Business. “If I was a community broker dealing with a clientele I have been dealing with for a number of years, I would fully believe that it won’t have a massive effect on them – however, it could reduce the amount of choice you have which is logically not a good thing for the consumer.
“However, the people we’re having conversations with are those who could be hurt by a hard Brexit – for example, the Gibraltarian insurers and some of the MGAs who are using UK-sourced capacity to trade into Europe on a passport-based basis.”
It is expected, of course, that the UK’s passporting rights will disappear meaning insurers wishing to do business in the European Economic Area would need to incur additional capital costs in order to open offices in the EU.
However, what are the options for the smaller firms that can’t set up their own capacity overseas?
“The bottom line is that it’s not going away – and you can’t bury your head in the sand,” said Brierley. “We’re looking at what the potential impact is for us and what the scenarios are to address that, and I am sure others are doing the same.”
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His firm effectively faces the reverse situation to most UK insurers in that Building Block is a Malta-regulated entity that has “about 13-14 schemes in the market covering a number of products and they are transacted in the UK.” For Building Block, it faces no issues with the business it carries out in Iceland, Portugal, Spain and Ireland among others – it can passport into any EEA country – but, it needs to address what will happen with the UK aspect of the business.
For Brierley that means potentially establishing a UK entity, which he states “would be a UK general insurer”, or fronting in the UK.
For UK insurers, meanwhile, it means looking at fronting in Europe or a protected cell company, with Brierley suggesting Malta presents an ideal opportunity,.
“We believe the Malta financial services authority is doing what it should do with its regulatory framework, we are fully Solvency II compliant and there is a strong financial services infrastructure here,” he explained.
“Crucially, Malta permits companies to passport their licence to write insurance business into any EU/EEA member state and its legislation enables the transfer of business of insurance by means of portfolio transfer, both in GI and Life.
“Malta is also a centre for Protected Cell Companies (PCCs), including BBI. A PCC is a regular trading company, which can create one or more cells for the purpose of segregating and protecting the cellular assets from each other and from the assets of the company. This enables companies wishing to write insurance to come together within the PCC framework and to share overhead costs while being protected from each other’s liabilities.”
But doesn’t doing business with a European insurer have hallmarks of the unfortunate dealings with Enterprise and Gable in the past? Brierley insists not – both because of Malta’s regulation and because of the company itself.
“At a micro level you have to look at why companies failed and what they were doing,” he said. “We are clear about the business we want to write and have a clearly defined risk appetite – we don’t write things with a big liability exposure. We write simple products like gap, gadget, ASU and so on that have a clearly defined financial exposure – and we won’t deviate from that.”
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