In the aftermath of the UK’s vote to leave the EU, Bermuda needs a twin pillar approach to European markets, addressing not only the 27 members of the EU but also the critical UK market
Europe (broadly defined) is the second-most important insurance market to the commercial insurance and reinsurance company members of the Association of Bermuda Insurers and Reinsurers (ABIR) after North America. This is reflected by our market coverage data, employment, capital investment and location of licensed entities in the UK, the EU 27 and Switzerland.
Since our capital and economic contributions in the UK and Europe help to make EU insurance markets more competitive, the EU considered Bermuda in the first wave for an EU Solvency II equivalence assessment.
Because Europe is such an important market to us, Bermuda has acted to win Solvency II equivalence; engage with critical IAIS regulatory work streams; enact Organisation for Economic Co-operation and Development (OECD) tax transparency, co-operation and enforcement rules; and nuild relationships with key EU officials and key jurisdictional insurance supervisors. Now with the reality of Brexit we need to ensure Bermuda has a twin pillar approach with regard to our European markets, addressing not only the EU 27 but also the critical UK market.
Bermuda has always had a historical, cultural and legal affinity with the UK – after all, we are the longest-standing UK overseas territory at more than 400 years. Bermuda, though, also has significant capital investments from British, Dutch, German, Italian and Swiss insurance companies and our EU-wide footprint is growing. Eighteen of our members have licensed entities in the UK, but our membership also has licensed entities in 16 other European states. Integration with Europe is also reflected in the Bermuda-based insurance executives coming from Cyprus, France, Germany, Ireland, Switzerland and the UK.
Here are four priorities for both Bermuda and the UK as the fallout of Brexit becomes clearer:
New UK-specific regulatory and trading agreements: with EU equivalency providing Bermuda carriers cross-border reinsurance market access and recognition of the Bermuda Monetary Authority (BMA) as a group supervisor, Bermuda will need to replicate this relationship with the UK by further strengthening regulatory relationships and interactions. Bermuda will seek to ensure the UK’s Prudential Regulation Authority (PRA) recognises the BMA as a group supervisor and Bermuda reinsurers can continue to engage in free market reinsurance trade with the UK. The UK has a long tradition of free trade in reinsurance that precedes Solvency II.
Achieving equivalence in practice: the UK provided some helpful leadership early on in Bermuda’s quest for equivalence with the EU. The PRA may benefit from the practical experience from Bermuda’s journey in achieving equivalence with its first-hand understand of dealing with the challenges in getting jurisdictions to recognise in practice what has been agreed to on paper. Winning equivalence from the EU for the UK under Solvency II and other financial regulation markets will be critical.
International Association of Insurance Supervisors forum critical: the PRA has been a leader and long-time significant contributor to International Association of Insurance Supervisors (IAIS) policy-making. Post-Brexit the UK’s IAIS role will be even more important, since its ability to influence global standards via the EU or the European Insurance and Occupational Pensions Authority will be lessened. Bermuda will also need to continue its IAIS engagement since the adoption of ComFrame is on the horizon and the International Capital Standards project will eventually move jurisdictions towards an evolving global standard.
OECD and G20 club rules: the UK is a powerful member of the OECD and the G20, but post-Brexit the UK and the EU positions may diverge. The opportunity the UK has is to build more alliances outside the EU bloc to achieve its goals. The UK’s departure from the EU will be notable on tax policy – a pro-market competition voice will be lost in the EU. With the UK goal of moving to a 15% corporate tax rate attracting attention, UK multinationals will be envied but may also face a negative attitudinal shift.
For Bermuda, the Ministry of Finance will continue its active engagement with the OECD and the EU as the EU moves to implement its own new tax avoidance policy directives. Bermuda needs to keep pace with the ever-evolving rules on co-operation, transparency and enforcement with its more than 90 jurisdictional tax treaty partners. Bermuda’s government is legally obligated to help its treaty partners collect the taxes they think are owed. Finally, ABIR members have nearly 10,000 employees in Europe, with 6,000 in the UK alone. In any given year, Bermuda’s commercial insurers provide close to 25% of Lloyd’s capital and capacity. These statistics mean Bermuda and the UK will be travelling companions along the post-Brexit road.
Brad Kading is president and executive director of the Association of Bermuda Insurers and Reinsurers