Will the UK’s Reinsurance Market Ever Stabilise Again?
Positioned as the world’s largest, it seems as though the UK reinsurance market cannot seem to stabilise. While in 2020 the world was shaken by COVID-19, in the UK the reinsurance market had already been shaken by the 2019 Brexit vote, eventually leaving the EU on January 31, 2020.
Brexit also meant that UK insurers’ and reinsurers’ authorisation to carry out business across the EEA (European Economy Area) was annulled, as were EEA insurers’ and reinsurers’ authorisation to carry out business in the UK, absent approval from local regulators.
As a result, the UK faced a shortage in domestic commercial reinsurance companies, pushing large companies to establish in-house insurance firms also known as “captives”. In 2020 alone 76 new captives were formed, with each underwriting its own policies. This led to a significant increase in policy prices alongside lower coverage.
A year post Brexit the UK reinsurance market found itself under siege with no existing arrangement that would enable it to at least conduct business with parallel EEA countries. Growing policy prices and fewer domestic reinsurance commercial companies led the UK House of Lords’ Industry & Regulators Committee to call for vital regulatory changes.
In response, on February 2022, the Reinsurance Advisory Board (RAB) provided the following positive points to be addressed:
- Open reinsurance markets are vital to enable the insurance sector to operate efficiently, to diversify risk globally and to promote the continued growth and resilience of global and national economies. Any barriers to trade in reinsurance undermine the efficiency of (re)insurance markets and lead to higher reinsurance costs and less insurance capacity in the long-term.
- As a cross-border, business-to-business activity, reinsurance should receive special, fit-for-purpose treatment in regulation. In particular, a pure reinsurance branch of an undertaking situated in a country that has been deemed equivalent should be subject to very limited— if any — additional UK regulation with respect to the local UK branch activities.
- An appropriate regime governing the activity of branches of foreign (re)insurers is key to maintaining and promoting the UK as an internationally competitive (re)insurance hub. The recent equivalence decisions in respect to EEA jurisdictions granted by HM Treasury were therefore welcomed by the RAB.
- Prudential supervision of branches should have a high degree of recognition of home state, legal entity supervision that is already in place.
If there’s anything we can be sure of, it’s that over the last three years the UK reinsurance market has been subject to constant change and regulatory uncertainty. When it comes to greater forces such as regulatory, political, regional, global pandemic-related etc., the only thing we can do to maintain a consistent level of stability is to establish a resilient digital platform that is designed to easily, even automatically adjust to constant changes.
Such a platform would:
- Enable accurate risk management
- Ensure compliance with regulatory changes
- Provide effective, automated decision-making tools
- Enforce change in real-time
- Be flexible and highly configurable for quick rollout
- Be scalable
- Easily integrate with third-party systems
- Be uniquely able to handle complexities
- Possess advanced rules capabilities
Learn more about Sapiens Reinsurance solutions.
People who read this also visited
- The Past 4 Years Have Exposed the Urgency of Modernising Reinsurance Platforms (5 of 5: Lack of Visibility)
- The Past 4 Years Have Exposed the Urgency of Modernising Reinsurance Platforms (4 of 5: Human Error)
- The Past 4 Years Have Exposed the Urgency of Modernising Reinsurance Platforms (3 of 5: Manual Processing)
- The Past 4 Years Have Exposed the Urgency of Modernising Reinsurance Platforms (2 of 5: Control)
- The Past 4 Years Have Exposed the Urgency of Modernising Reinsurance Platforms (1 of 5: Process)