Brexit could prompt QBE restructure, European Operations head says

Richard Pryce alternative

Abundant insurance capacity and the increasing use of facilities are prompting brokers to push for higher commissions, according to QBE European Operations chief executive Richard Pryce.

Speaking to journalists about his division’s results this morning, Pryce also said that QBE may have to restructure its operations if the UK leaves the European Union.

‘Clamouring for business’

QBE reported this morning that the commission ratio for European Operations increased to 18.4% in 2015 from 18.3% in 2014. The company put the increase down to “a combination of increased broker demands as well as a reduction in our net earned premium”.

Pryce explained that increased broker demands for commission were in part driven by brokers’ growing use of facilities, under which brokers invite underwriters to participate on sections of their business on pre-agreed terms rather than underwrite risks individually.

The best-known example is the controversial deal Aon struck with Berkshire Hathaway in 2013, under which Berkshire got an automatic 7.5% share of any business Aon placed with Lloyd’s underwriters.

Pryce said: “There is quite a lot of facilitisation going on in the industry and it tends to generate higher commission.”

Pryce also contended that the overabundance of insurer capacity is emboldening brokers to ask for more commission.

He said: “With such an excess of supply, and people clamouring for business opportunities, brokers realise that there is a greater opportunity for them to extract a greater proportion of the premium.”

Brexit restructure

With the referendum on whether the UK should remain in the European Union looming, many insurers with European connections are looking at how a ‘Brexit’ would affect them.

Pryce said that around 20% of the UK-based QBE European Operations’ insurance and reinsurance business is written in Europe.

He said: “One has to be realistic that if the electorate decide to leave, it is likely we would have to restructure the way we operate our organisation.”

He added: “Our clear focus at the moment is making sure that whatever the outcome, we have a seamless transition so we can carry on trading.”