Insurance Jottings

Lloyd’s platform affected by Iran sanctions

New US sanctions are likely to prevent the use of a Lloyd’s IT platform for any Iran insurance, adding to difficulties for European insurers providing cover for the country, according to a Reuters report citing chairman Bruce Carnegie-Brown on the 13th July.

 

Mr Carnegie-Brown told Reuters the re-imposition of sanctions meant insurers “probably” would not be able to process Iran-related business through the Lloyd’s platform, partly owned since 2017 by US firm DXC.

 

Lloyd’s and other European insurers provided marine, energy and trade credit cover for Iran after the US lifted secondary sanctions in January 2016 following a nuclear deal between world powers and Iran reached in 2015.

 

The EU also lifted sanctions in January 2016. In June 2018, the US Treasury’s Office of Foreign Assets Control (OFAC) revoked licences which had allowed foreign subsidiaries of US firms to trade with Iran.

 

“You can do it through Lloyd’s through other settlement mechanisms outside DXC, it’s just more complicated and more expensive to do it that way,” Mr Carnegie-Brown told Reuters.

“There is a bit of an evaluation going on about what business opportunities there are, in any event.”

 

DXC provides data processing and other back office services to Lloyd’s and other London insurers through two firms, XIS and XCS, who are jointly owned by DXC’s British subsidiary Xchanging, Lloyd’s and the International Underwriters’ Association, Reuters noted.

 

Lloyd’s insurers and brokers with Iran business included Chaucer, Ed Broking, RFIB and UIB, according to Reuters.

 

Iran’s economy is heavily reliant on its oil industry and needs marine insurance to ensure the smooth flow of maritime trade for both its exports and imports.

 

AIG Completes US$5.5 Billion Acquisition of Validus

On the 18th July, American International Group Inc said it had completed its acquisition of Bermuda reinsurer and specialist insurer Validus Holdings.

 

The US$5.56 billion all-cash transaction was first announced in January, about eight months after Brian Duperreault took over at AIG as president and chief executive officer.

 

FCA prepares for hard Brexit

Britain’s banks and insurers must plan for a “hard” Brexit in case a transition period is not in place next March, a senior British regulator said on the 19th July in a warning echoed by Brussels.

 

“With eight months until we exit the European Union in March 2019, it is important we all — regulators and industry — continue to plan for a range of scenarios,” said Nausicaa Delfas, head of international strategy at the Financial Conduct Authority.

 

“Across the FCA, together with colleagues from the Bank of England and the government, we have been working to develop a number of safeguards and contingencies, in the event of a hard Brexit, to ensure that ‘day 1’ works smoothly,” Ms Delfas told an event held by TheCityUK.

 

Britain and the EU have agreed on a transition deal bridging Brexit in March next year and the end of 2020, but it has yet to be ratified, meaning financial firms based in Britain could face an abrupt end to EU market access.

 

EU banking, insurance and markets watchdogs have already warned their respective sectors to be ready for a hard Brexit. The bloc’s executive European Commission told EU states on the 19th July to “intensify preparedness” for a potentially disruptive Brexit.

 

Britain has said it and the EU should act to ensure that cross-border financial contracts like derivatives and insurance policies can still be serviced after March, but the EU reiterated on the 19th July that it would not legislate for now.

 

“In relation to contracts, at this juncture, there does not appear to be an issue of a general nature linked to contract continuity as in principle, even after withdrawal, the performance of existing obligations can continue,” the European Commission said on the 19th July.

 

It is unclear what sort of EU market access financial firms in Britain will have after the transition period ends, prompting many banks and insurers to have new hubs up and running in the bloc by next March to avoid potential disruption.

 

A group of eight EU states also called for a redoubling of efforts to build a capital markets union in the bloc to provide “stable and cost-effective” funding for EU companies, given that Britain, Europe’s biggest financial centre, is leaving.

 

Do Your Own Thing

Britain’s government wants future financial services trade with the EU based on an “enhanced” version of the bloc’s basic “equivalence” regime used by Japan, Switzerland and the United States.

 

Brussels alone grants access to foreign firms if it deems that their home country rules are equivalent or aligned enough with those in the bloc.

 

Britain says this is one-sided and wants changes to make it more predictable and transparent. The EU is amending the regime, but its alterations would make it tougher on big foreign trading and clearing firms like those found in the UK’s financial sector.

 

Hugh Savill, director of regulation at the Association of British Insurers said that even with enhanced equivalence, the EU’s “imperialist” approach to rule-making would have a chilling effect on how UK regulators can supervise markets and consumers.

 

“Nobody wants to be in the position of a rule taker,” Ms Delfas said.

 

Antony Manchester, head of Brexit at asset manager BlackRock said enhanced equivalence can be made to work, but Britain and the EU have different ideas on what it means.

 

“In these debates on equivalence… the UK and EU are quite evenly matched in terms of financial services. That means we will see something more like the negotiations between the EU and US, where we give and take on both sides,” Mr Manchester said.

 

But the EU and United States took four years to agree equivalence on a rules just for clearing derivatives, raising concerns in Britain over what the City financial district could face after Brexit.

 

Manchester, a former UK Treasury official, said if Brussels does not deem a UK firm to be equivalent, British regulators could choose to “do our own thing,” raising concerns about predictability for international financial firms.

 

Seventeen buys marine specialists Everards

Seventeen Group has bought West Malling-based Everard Insurance Brokers for an undisclosed sum.

 

Everards, which was established in 1969, specialises in marine and marine trades controlling £10 million of gross written premium.

 

Seventeen confirmed that all the staff including the vendors managing director Stephen Roper and director Tim Gilbert will remain with the business and continue to operate out of the existing office in Kent.

It will keep its brand and act as a specialist division within Seventeen’s broking subsidiary James Hallam.

 

The deal is the fourth for Seventeen this year having already purchased East Sussex-based Rupert Burgoyne as well as Scottish brokers Complete Insurance Solutions and Total Insurance.

 

Financial Services Industry Slams Latest UK Proposal for Post-Brexit EU Trade Ties

Britain’s financial industry slammed Prime Minister Theresa May’s latest proposal for Brexit, with some calling it the worst outcome possible.

 

In some of their most forthright comments since the referendum vote in 2016, industry executives said on the 12th July that her plan for a looser partnership with the European Union in financial services would drive up costs and hurt the wider economy. They also said it would leave the country losing easy access to its biggest market while also being at the mercy of the EU’s rules.

 

Ms May is now leaning towards an agreement for the UK which will be similar to so-called equivalence — existing arrangements the bloc has with other countries, based on maintaining similar regulations, according to the long-awaited White Paper on Brexit.

 

As a result, UK-based banks would lose their unhindered access to EU markets.

 

“Today’s Brexit White Paper is a real blow,” Catherine McGuinness, the policy chairman for the City of London Corporation, which manages the British capital’s financial district, said in a statement. “With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth.”

 

Ms McGuinness said equivalence is not good enough and would need to be substantially enhanced. A key sticking point in the current equivalence set-up is a potential worst-case scenario for the UK: the EU’s ability to pull out of such an arrangement at short notice unilaterally, undermining long-term planning for businesses.

 

Hammond’s Defence

Chancellor of the Exchequer Philip Hammond defended Ms May’s plan, saying it “can deliver a good deal” for the UK and its financial industry. He has been one of the staunchest defenders in Ms May’s cabinet of maintaining close ties with the EU after Brexit.

 

“Britain’s successful service sector — and our world-beating financial services industry in particular — has always been at the heart of our plan,” he said. “I am resolute that we have to secure a deal which allows the sector to continue to flourish.”

 

Britain wants to expand the range of banking services covered by equivalence and have more input on the future shape of EU regulations. Indeed, the UK will have advantages over other countries while formulating a new arrangement with the EU, Mr Hammond said. Both sides already have the same regulatory frameworks and stand to benefit from preserving financial-services relationships.

 

”Many of our EU partners understand this,” he wrote. “Some have been talking about enhancing the existing equivalence regime to provide a basis for future EU-UK financial services market access.

Bilateral Treaty

There is no certainty that the EU will look favourably on any of Ms May’s proposals, even if they are watered down from the previous stance. Until now, Ms May had held out for an agreement based on “mutual recognition” of each other’s financial regulations, which would involve little or no disruption to the status quo. But the EU has said all along that was unacceptable due to the UK’s unwillingness to stick to the rules of the single market, and existing equivalence arrangements were all that was on offer.

 

“Having to comply with financial regulations we have no say over would be the worst possible scenario for our world-leading insurance sector, so we will look to the government to negotiate a better outcome than this,” said Huw Evans, the director general of the Association of British Insurers. “Whatever the final outcome, the insurance industry is too important to be a rule taker.”

 

The UK proposed that some processes “would be bilaterally agreed and treaty-based,” and “a structured consultative process of dialogue” between Britain and the EU would help maintain regulatory equivalence. The White Paper specifically criticised third-country equivalence regimes as lacking an official, bilateral “institutional dialogue.”

 

Under Ms May’s plan, both sides would agree not to pursue divergent regulatory policies in relation to financial services and consult on each other’s proposals at an early stage. She also called for clear timelines and notice periods appropriate to the scale of the change, should either party want to withdraw equivalence.

 

With talks between the UK and EU stalled since March, global banks with European headquarters in London are rushing to establish new trading hubs elsewhere in the region and have already started moving staff.

 

EU regulators have made it clear they expect banks to establish full-scale, standalone operations inside the trading bloc as soon as possible.

 

The financial services industry contributed about £174 billion (US$230 billion) to the UK economy in 2016, or about ten percent of the total, according to the lobby group TheCityUK.

 

The sector employs about 2.3 million people, or 7.4 percent of the total working population.