Gibraltar: grappling with Brexit

For now, no deal has been reached that secures the future of the passporting rights that has allowed UK and Gibraltar-based insurers to write premiums in the EU, and without such a deal these rights will end after Brexit.

With more than 90% of Gibraltar’s insurance business being written into the UK, the governments of both have reassured Gibraltar-based insurers that this can continue, which could mean for many that little will change after 29 March.

Despite this, Gibraltar Financial Services Commission chief executive Samantha Barrass says the regulator has still been advising firms to prepare for the worst. “We have encouraged firms to plan for a no-deal Brexit,” she says.

“Where necessary, the small number of firms affected are taking steps to restructure their operations and business on the basis that they will no longer benefit from passporting of services or establishment in the EU27.

“In some instances this has resulted in firms considering the economic value of any EU business or the cost of establishing a subsidiary in the EU.

”Many firms have also looked to undertake portfolio transfers of historic claims portfolios to EU27 entities to allow for continuity of services on expired policies.”

Gib player cuts ties amid Brexit

One company that has already decided to cut its ties with the EU is Evo Insurance, with chief executive William Bidwell saying that the costs of operating a European base as well as their Gibraltar office were too much.

Planning for a hard Brexit “Insurers in Gibraltar tend to be smaller than those in the UK, and it is therefore less likely that they will already have a presence in the EU27,” Bidwell says.

“Insurance is a very compliance-heavy business, and it is hard enough doing that in one country, let alone two.

“We didn’t know how Brexit was going to happen, and we weren’t going to spend a lot of time on it if we didn’t know if it was even going to happen.

”So we assumed there would be a hard Brexit and we wouldn’t be able to write business in Europe any more, and that is what we prepared for.”

He added: “We have had to give notice both to our regulator, the GFSC, and the regulators in European countries where we have done business, who have been very concerned about this.

”We have had to reassure them that we will no longer continue to write business in that country after 29 March.”

Other insurers, however, are considering their position within Gibraltar, and the UK’s exit from the EU could be mirrored by some leaving Gibraltar.

Premium Insurance, which only started writing premiums in December 2016, said in its Solvency and Financial Condition Report: “The current European legislation enables Premium to provide services across the European Economic Area. If passporting rights are withdrawn, as expected, following the UK’s exit, Premium would be unable to conduct its business from Gibraltar.

“The directors keep developments under continuous review and are preparing plans for relocation of the company should this be required in the future.”

Gateway to the UK market

But while the passporting rights into the EU will end for Gibraltar-based insurers, they will maintain their rights to write business in the UK, and Barrass says this represents an opportunity for Gibraltar.

“Current EU27 insurance firms may well establish in Gibraltar, using the jurisdiction as a convenient gateway to the UK,” she says.

“Gibraltar is a credible alternative jurisdiction to the UK for servicing UK consumers. The choice between Gibraltar and the UK inevitably comes down to the preferences of the particular firm, especially as both regimes have implemented EU legislation such as Solvency II.

“Brexit could, therefore, result in an increase in applications for the re-domiciliation, the establishment of subsidiaries and/or branches in Gibraltar to take advantage of the jurisdiction’s continued access to the UK market.”

Some have said that Brexit could even allow the UK and Gibraltar regulators to introduce legislation that requires less capital than under Solvency II, giving insurers operating under their jurisdiction an edge over their European rivals.

But Michael Tripp, head of financial services for international accounting and advisory firm Mazars, says that, for now at least, Solvency II seems here to stay.

“If and when Brexit does happen, there will be political pressure from some politicians to look at the capital regime and see if there is a way to give businesses an edge over the EU,” he says.

“But at the moment both the UK and Gibraltar have said they can’t see any other option than being Solvency II compliant, and it would not be a top priority of anyone to want to change the regulations again and cause more internal navel gazing. “But in the medium-term it could certainly be something that could happen.”