Insurance Jottings
AM Best warns of increased Brexit uncertainty for UK insurers uncertainty for UK insurers
AM Best has warned that uncertainty as to the UK’s future trading relationship with the EU has increased following the vote in the House of Commons on the 15th January, rejecting the deal terms agreed with the EU by Prime Minister Theresa May’s government.
Historically, Lloyd’s, the London market and other UK-based commercial insurers have underwritten European Economic Area (EEA) business on a cross-border basis. However, if the UK withdraws from the EU without a deal, or at the end of an agreed transition period, passporting rights are expected to cease and UK-domiciled insurers will no longer be able to issue insurance contracts in the EEA, AM Best explained.
In order to continue to provide insurance services to EEA customers post-Brexit, many affected companies have chosen to establish new EU subsidiaries. Others, particularly small insurers who do not have the resources to create additional companies, have formed relationships with local carriers which will be able to front business for them.
AM Best expects rated insurance groups to have these subsidiaries or arrangements in place by the 29th March 2019, ensuring that they are able to underwrite EEA business going forward, even in the absence of a trade deal between the UK and the EU.
It is possible that if there is no trade deal, UK insurers will not be able to service existing contracts in certain EEA countries by settling and paying claims, AM Best noted.
It is the hope and expectation of the insurance industry that a political solution will be found to this problem; for example, by allowing the grandfathering of existing contracts, the agency added. In spite of this, affected insurers have been putting contingency plans in place and exploring their operational and legal abilities to settle claims and provide other services to policyholders in individual EEA jurisdictions.
The majority of insurance groups which are affected by Brexit and rated by AM Best have either completed or initiated a transfer of their EEA business from their UK insurer to an affiliated EEA insurer under Part VII of the Financial Services and Markets Act 2000.
However, the Part VII transfer process is expensive and time consuming, with transfers subject to extensive regulatory scrutiny and court approval, AM Best noted.
Consequently, a number of Part VII transfers will not be complete by the end of March 2019, the agency noted.
Cayman Finance describes Netherlands blacklist as unusual and damaging
Cayman Finance has described a decision by the Netherlands to blacklist 21 jurisdictions including the Cayman Islands, breaking from the stances of other European Union member states, as “unusual” and an attempt to tarnish the reputation of the Cayman Islands.
The decision was partly made based on the low corporate tax rate in the Cayman Islands, something which Cayman Finance stressed is a subjective view.
It also noted that the action does not take into account Cayman’s demonstrated adherence to international standards for transparency or participation with the OECD’s BEPS Inclusive Framework and ignores Cayman’s engagement with the EU’s Code of Conduct Group over the last two years to address their concerns regarding economic substance.
“While discussions and negotiations relating to this and other blacklists are government-to-government processes with the Ministry of Financial Services taking the lead with regard to the Cayman Islands response to this development, Cayman Finance stands ready to support the Government as we protect, promote, protect, develop and grow this important pillar of the Cayman Islands economy,” said Cayman Finance CEO, Jude Scott.
“As such, we wholeheartedly reject this attempt to tarnish the reputation of the Cayman Islands and our financial services industry, which has been established as a premier global financial hub, efficiently connecting law-abiding users and providers of investment capital and financing around the world benefiting developed and developing countries,” he added.
The body also noted that it is important to note that the Cayman Islands does not have double taxation treaties and therefore does not pose risk of aggressive tax avoidance. In addition, the Cayman Islands has had a Tax Information Exchange Agreement (TIEA) in place with the Netherlands since 2009, which facilitates the exchange of tax information to enable better tax collection by the Netherlands and support any investigations into alleged tax evasion.
The Cayman Islands annually automatically exchanges information with tax authorities in over 100 countries under the OECD Common Reporting Standard framework.
The Cayman Islands is tax neutral and adds no additional tax to financial services transactions in its jurisdiction. Investee entities and investors are still subject to reporting and paying their home jurisdictions’ relevant taxes. In addition, the Cayman Islands meets or exceeds globally accepted standards for transparency and cross border cooperation with tax authorities and law enforcement.
At the same time that the Dutch government has taken this unusual decision to give the Cayman Islands this classification, international policy makers continue to recognise the vital role Cayman’s financial services industry plays as a strong partner in combating corruption, money laundering, terrorist financing and tax evasion, Cayman Finance also stressed.
The definitions of tax havens by leading international organisations do not apply to the Cayman Islands as the legal, regulatory and legislative basis for the Cayman Islands financial services industry clearly demonstrates Cayman is a transparent, tax neutral jurisdiction and not a tax haven.
Cayman Finance said it encourages authorities in the Netherlands to consider all the facts before taking such a position about a globally beneficial and well-regulated jurisdiction like the Cayman Islands.
Brexit vote extends uncertainty for UK insurance sector
Uncertainty continues for the UK’s insurance industry after the government’s Brexit deal has been rejected on the 15th January in what is dubbed the biggest ever government defeat in history.
There appears to be little hope that prime minister Theresa May will pay more than scant attention to insurance as part of the financial services sector.
Brexit: London maintained Extremus participations on the 1st January
Almost every Lloyd’s and London market participant on the €2.5 billion reinsurance treaty for the German terror pool Extremus Versicherung maintained their participations at the 1st January 2019 despite the uncertainty over Brexit.
Brexit prompts AXA to move international risk, reinsurance jobs to Ireland
On the 10th January, French insurer AXA plans to move its international risk and reinsurance operations from the UK to Ireland in preparation for Brexit.
CCRIF expands to Panama
On the 10th January 2019 it was announced that the risk pooling facility Caribbean Catastrophe Risk Insurance Facility (CCRIF) has expanded its cover to include Panama.