Navigating Brexit

What happens to the insurance market following the invoking of Brexit? Will this have any ramifications or changes in domiciles of Captives?

So far there are more questions than answers – some UK insurers adopted a ‘wait and see’ approach, whilst others were pro-active in their approach with plans already in place for day one of BREXIT. To start with Lloyd’s of London Chief executive Inga Beale, has announced that the new Lloyds Insurance Company will be set up in Brussels, to ensure “passporting” into EU’s single market, in view of the potential loss of crucial licencing rights following a BREXIT. Other comments come from prominent officials the likes of Xavier Rolet, chief executive London Stock Exchange who warned that if the government fails to provide a clear plan for post-BREXIT, this could cost the City of London up to 230,000 financial services jobs (The Guardian).

At this stage let us fast zoom into the insurance market, many insurers in London write business throughout the single market. The EU is a significant market accounting to 32% of the global insurance market with assets of almost €9,800 billion. With almost €9,800 billion of assets this is equivalent to 61% of the GDP of the EU. (insuranceeurope.eu)

Therefore, it is progressively becoming more evident that UK insurers relying heavily on their EU Single market passport, need to address the uncertainty surrounding their current business model. The spontaneous question which follows is where to establish one’s presence in the EU, to continue to provide its customers a seamless product. The answer is complex, yet Malta should certainly be on the list of serious options.

It is no secret that some foreign banks and insurance companies in London have started to plan to relocate although for now, the exodus is subdued as London is a global financial hub, on a par with Wall Street.

What Makes Malta An Attractive Jurisdiction?

Quoting Joe Portelli, chairman of the Malta Stock Exchange, he said: “Malta offers a highly competitive, cost-effective solution for any insurance company looking to establish itself within the EU. We are a pragmatically well-regulated, English-speaking financial centre with a hardworking and educated workforce”.

The industry prefers a friendly BREXIT, however will UK start negotiating trade agreements with third countries such as Malta, to be signed after leaving the EU? One of beneficiaries of BREXIT may well be Malta, because of its EU membership, its efficient regulatory and legal environment and its highly educated, English-speaking workforce.

Kenneth Farrugia, chairman of Finance Malta, commented: “Malta’s proposition as an international financial centre has continued to enjoy momentum, as evidenced by the sustained growth experienced in 2016 and the conduit of international business operations currently seeking an investment services licence through the Malta Financial Services Authority”.

Other Options For BREXIT

In the case of financial services, it would be imperative for London-based banks/insurance companies to maintain full “passporting” rights for services within the EU – rights that they will certainly forfeit under a hard exit. So many wonder what options in the negotiations will be open for London in case of a hard Brexit. To mention one model one can refer to CETA (The Comprehensive Economic and trade Agreement between the EU and Canada) as a potential model when leaving the Single Market to be replaced by a trade deal with the EU. This is a successful attempt by EU to reach a trade deal with Canada and may well prove to be a landmark agreement, which may be assimilated by London to move forward should it forfeits “passporting” rights. Simply put the signed accord CETA, will pave the way for EU companies to be able to bid for public contracts in Canada at all levels of government so for the first time this will open trade with both Canada’s federal government and municipalities to EU exporters to potentially buy goods and services worth over €30 billion. The trade pact will bring new opportunities for European companies by creating access to the Canadian market in key sectors such as financial services, telecommunications, energy and maritime transport.

Another trade agreement London may wish to follow is the TTIP (Transatlantic Trade and Investment Partnership) which the EU lobbied to be concluded under the Obama administration. This partnership deal looks like it will be revived under the Trump administration. This is evident by the apparent reversal of policy manifested by Paul Ryan, Speaker of the US House during a recent visit to London. He said “The United States will continue to work closely with our EU friends, and chart a path forward on TTIP negotiations”. Furthermore, Robert Lighthizer the US trade representative has said he is open to resuming negotiations on a Transatlantic trade pact with the EU. His remarks came in an exchange of letters with the US Senate Finance Committee as Lighthizer did not rule out continuing with the TTIP talks. “In the meantime, we would be open to exploring ways to address barriers to US exports and to expand trade with the EU and its member states.” In hindsight, we recall how both sides have been negotiating the TTIP, for almost four years.

Simply put, TTIP aims to reduce or remove a wide range of barriers to transatlantic trade and investment. So how can CETA or TTIP ever help to solve the lack of “passporting” rights once UK moves out of the Single Market? The answer is a complex one and there is no clear indication how negotiations will pan out but these two trade agreements which EU is planning with USA and Canada may be used as a backdrop for a new trade deal in the context of a hard BREXIT.

Time is of essence since captive owners and insurers have a mere two years from March 2017 to formulate any contingency plan. It goes without saying that maintenance of access to European markets, in particular financial services, is a key objective for the UK in its negotiations, although certain EU leaders have already made objections to the UK’s wish to “cherry pick” particular options and benefits. In conclusion, the harvest of opportunities is rich for those who venture forth and as they say the early bird catches the worm.

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