Insurance Jottings

EIOPA issues no-deal Brexit contract continuity recommendations

European Insurance and Occupational Pensions Authority (EIOPA) has issued guidance for European regulators to ensure insurance contract continuity if the UK leaves the European Union with no deal.

The UK is set to leave the EU on the 30^th March with or without a deal, which could have an impact on insurers’ – and by extension captive insurers’ – right to provide insurance services in EU member states from a single country licence.

An EU resident captive insurer may also need a licence to conduct insurance business in the UK.

Under a no-deal Brexit, EIOPA suggested UK insurance undertaking and distributors would lose their right to conduct business across the 27 EU member states by way of freedom of establishment and freedom to provide services.

Insurance contracts concluded before the 30^th March would be valid after that date in principle. Going forward, however, insurance undertaking would not by authorised to carry out insurance activities with regard to cross-border insurance contracts anymore.

“Besides the fact that UK insurance undertakings have taken appropriate measures for most the cross-border insurance into the EU27, there is a residual amount of business which would become unauthorised when the United Kingdom leaves the European Union,” said Gabriel Bernardino, chairman of EIOPA.

“To ensure the protection of policyholders and beneficiaries concerned national supervisors have to ensure consistent supervisory actions and to cooperate closely and effectively.”

EIOPA has provided nine recommendations with regard to insurance contract continuity, ranging from the authorisation of third country-branches, the lapse of authorisation, the cooperation between the national competent authorities, and the communication to policyholders and beneficiaries to distribution activities.

Recommendations are addressed to National Competent Authorities (NCAs), to help foster supervisory convergence and to ensure consistent supervisory practices.

Some of the recommendations include NCAs allowing the finalisation of portfolio transfer from UK insurance undertaking to the insurance undertaking of the member states.

The full recommendations for the insurance sector in light of a no-deal Brexit can be accessed on EIOPA’s website.

A leading broker had previously said that Brexit is not influencing – among European captives, and, while there are vast uncertainties around Brexit, it is not high on the risk management agenda for them.

Skuld to cease Lloyd’s syndicate 1897 as profits slip

Marine insurance provider Skuld will cease underwriting business from its Lloyd’s syndicate 1897 in a move the company hopes will ‘improve its profit potential’, but will lead to role reductions and some staff departures in London.

Lloyd’s syndicate 1897, which writes marine, energy, cargo and liability insurance, will cease to accept new business by 1st July 2019, the company confirmed in a statement on the 28^th February.

“All outstanding policies will continue to be handled in-house, to ensure a full continuity of Skuld service to members and clients. Skuld will work closely with brokers and regulators to ensure the transition is seamless,” Skuld said. “Some roles at the syndicate will cease, and some staff will leave Skuld over the coming months.”

Additionally, the company announced that it will underwrite all its hull and offshore energy business on the A-rated corporate paper of Skuld Assuranceforeningen, through Skuld UK in London and SMA in Oslo.

The transfer of business from Lloyd’s to corporate paper is said to be a part of a wider strategy to enhance its commitment to non-protection & indemnity business and to streamline all of the company’s insurance offerings.

Ståle Hansen, Skuld president and CEO, said: “Our overriding focus at Skuld is to provide the best service and competence to our members and clients. This requires us to be firm on our strategy of innovation, diversification and sustainable growth. In recent years we have expanded our offering beyond traditional P&I to include marine and energy insurance underwritten through syndicate 1897 at Lloyd’s (launched in 2011) and Skuld Marine Agency (acquired in 2016).

“With the establishment last year of Skuld UK, operating as a fully authorised branch of Skuld/SMA, we are now able to reorganise Skuld to better deliver our highly-regarded insurance services through an even more streamlined structure and improve operational synergies.”

Mr Hansen added: “This adjustment to our marine and energy insurance underwriting will reduce Skuld’s overall expense ratio, and therefore enhance our proposition and improve our profit potential. That underpins our goal of providing relevant products to members and customers, and at the same time ensuring we deliver the market-leading Skuld service to all.

“London remains a focal point and these developments allow us more easily to align P&I with other product lines.”

Britain Adopting EU Laws So Financial Firms Ready for ‘Any’ Brexit Outcome, Says Minister

Britain’s financial sector will continue to function properly whatever form Brexit takes, a junior minister said on the 26^th February, although the head of an industry body said it would back proposals to avert Britain leaving the EU without a withdrawal deal.

Britain is due to leave the European Union this month, but has not yet agreed a divorce settlement with the bloc, creating uncertainty and fears about a potentially disorderly departure.

“We are very focused at the Treasury for preparing for any outcome,” junior finance minister Robert Jenrick told the annual conference of the Association of British Insurers.

Britain is putting EU law onto its statute books.

“This will ensure that whatever the outcome of the exit from the European Union, we have a functioning financial services regime,” Mr Jenrick said.

However, Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), described the prospect of a no-deal Brexit as “Project Madness.”

British Prime Minister Theresa May will propose formally ruling out a no-deal Brexit in an attempt to avoid a rebellion by lawmakers who are threatening to grab control of the divorce process, The Sun newspaper reported.

The CBI would back proposals that would take a no-deal Brexit off the table, Ms Fairbairn told a conference panel.  “Businesses want a deal, they know that no deal must be averted.”

Several EU states have pledged to put in place laws to help avoid the worst fallout from any hard or no-deal Brexit.

But a regulatory source told Reuters that these laws have yet to be put into effect by EU member states.

“Sadly, I am ashamed to say I cannot give you the reassurance that you deserve. It is our duty to put you in a position of greater certainty and that is what we are trying to do,” Mr Jenrick said.

The insurance sector is a British success story, contributing 30 billion pounds to the economy annually, but it must continually adapt to keep up with developments such as financial technology, or fintech, he said.

“We cannot assume the UK is predestined to remain at the heart of this market for ever,” Mr Jenrick said.

(Article dated the 26^th February)

Germany to offer passporting to UK insurers in no-deal Brexit

On the 22^nd February it was reported that German legislators have adopted preliminary provisions to extend temporarily the passporting rights of UK financial institutions -including insurers – in the event of a no-deal Brexit.

Steady increase in the number of energy companies using captives: Aon

The energy sector has seen an increased use of captive insurance over the last five years, as it continues to be a key part of companies’ risk management strategies, according to an Aon report.

Aon’s report, ‘Supporting The Energy Industry Through Captive Insurance Programs‘, noted that while large organisations have been the most prevalent users of captives, there has been a steady increase in the formation and use of captives by clients with revenues under US$10 billion.

This is highlighted by the fact that only 28 percent of Aon-managed captives had revenues under US$10 billion, whereas in 2018 that percentage went up to 40 percent.

Mark Owen, senior vice president Aon’s Commercial Risk Solutions, expects the use of captives in the energy sector to continue grow “as an integral part of energy companies’ risk management strategies across the spectrum.”

“The regulatory and market landscape continues to evolve which gives rise to the need for a steady focus on control of risk and management of the total cost of risk,” he said.  “This has to date seen a steady progression in companies seeking onshore options in the US.”

Aon currently manages around 65 energy captives with collective gross written premiums of over US$1.7 billion.

About 52 percent of these energy clients are in the field of oil and gas extraction, 20 percent in petroleum refining, and the remaining are in industries relating to mining and other natural resources.

The Aon report suggested there had been great interest in new captive formations in North America.

Around 44 percent of Aon-managed energy captives are owned or controlled by parent companies in North America and 30 percent are located in Europe. In both these regions, companies with revenues under US$10 billion account for up 47 percent of total captive formations with average captive gross written premium of US$7 million.

Skuld renewals rise for P&I in 2019

Marine insurance provider Skuld reported a 4.3 percent net increase in renewals for mutual protection and indemnity gross tonnage year-on-year from 2018 to 2019.

This included committed tonnage for delivery throughout 2019, with the company’s  mutual P&I tonnage now at 95 million gross tonnes.

Skuld said it had grown organically as well as attracting a “significant number” of new mutual members in the Far East, Europe and the US. The insurer highlighted “significant growth” in all commercial P&I business lines, including charterers and offshore.

Ståle Hansen, Skuld president and CEO, said: “In an increasingly pressured P&I market, we are very pleased to announce another positive P&I renewal outcome. This success is largely due to the dedication of our talented team, which collaborates across our network of offices and departments to deliver our members, clients and brokers with the service and competence they rely on.

“Our diversified product offering and excellence in service levels are reflected in our loyal membership. We take pride in delivering insurance solutions which truly meet the requirements of clients’ high-quality tonnage, through fair dealing, and this is why they choose to stay with Skuld.

“Skuld’s recent P&I renewal confirms our top tier position within the members of the International Group of P&I Clubs, and this renewal season represents a solid start to the 2019/20 policy year, placing us firmly on track to achieve our growth ambitions.”