The London Market Group (LMG) has released a detailed proposal of a Free Trade Agreement (FTA) that sets out a mechanism that would enable the EU and UK to maintain access to their insurance markets and control over their respective regulatory systems, once the UK leaves the European Union (EU).
The proposal focuses on the need to allow clients uninterrupted access to London’s breadth of expertise and specialist risk capacity. It will ensure that neither the EU nor UK will have to sacrifice market access or control over their respective regulatory regimes.
The LMG Brexit taskforce, representing the UK’s commercial insurers, reinsurers and brokers, has centred its proposal on a Free Trade Agreement (FTA). This would be a bespoke agreement that would permit mutual market access and recognition of both the EU and UK’s prudential regimes - with a Solvency II equivalence outcome built into it.
It would also include recommended framework for supervisory cooperation, which would align regulatory oversight of (re)insurers and brokers/ intermediaries in both the UK and EU.
The agreement proposes a ‘prudential carve-out’ and is not a new concept to the EU.
The proposed solutions build upon the bilateral agreement that came into force on the 7th of November between the EU and US, which allows EU and US reinsurers to operate in each others jurisdiction with no need for local presence and it aligns regulatory systems and removes cross-Atlantic collateral holding requirements.
The LMG suggests a complimentary transition period to provide continuity of client service by allowing the London market to continue operating with current agreements until the FTA is agreed, thus providing EU and UK (re)insurers with the stability needed to prevent business disruption.
In addition, it could relieve EU and UK firms of pressure to ensure post-Brexit contingency plans in the case of a hard Brexit.
The LMG proposals have also been designed to prevention disruption and financial instability for EU clients that rely on the London Market for essential risk mitigation services, remove the risk of gaps in vital insurance cover and provide contractual certainty for business transitioning to new UK-EU models and for businesses to run-off at the time of Brexit.
In addition, they deliver an orderly transition by providing EU (re)insurers and brokers/ intermediaries with sufficient time to transition and secure coverage certainty for clients and maintain client service standards and remove pressure from EU and UK firms to make premature decisions to move business bases prior to the Brexit negotiations being concluded.
Malcolm Newman, managing director of SCOR’s EMEA Hub, chairman of the International Underwriting Association (IUA) and sponsor of the LMG’s taskforce, said the proposal “creates a workable solution that would mean that neither the EU nor the UK would have to sacrifice market access or control over their respective regulatory regimes, solving the access versus control dilemma.
“The London Market plays a vital role in pooling risk across the EU and UK markets, and we are all focused on ensuring continued access to the broad range of insurance services, expertise and capital that we offer to EU businesses. Our goal is to ensure that clients are not left in a situation where there is contractual uncertainty and protection gaps post Brexit.”