Gibraltar Gears Up for Brexit Influx

We replicate an article first published in Reactions (www.reactions.net.com ) created in collaboration between Michael Heusner and Michael Ashton.

Gibraltar gears up for Brexit influx

Due to its position as a British overseas territory, Gibraltar will be heavily impacted by Brexit depending on how negotiations ultimately play out, but the island is also set to emerge as an especially attractive destination for re/insurers seeking an alternative way to access UK business.

“I’ve met with people representing companies from a number of jurisdictions interested in either re‐domiciling or setting up a parallel structure here,” Michael Ashton, senior executive at Gibraltar Finance, told Reactions.

“A number of these companies are saying that ideally they would like an agreement in principle until they know exactly what the conditions of Brexit will be. After that, it should be a matter of putting their capital into the business and having their personnel in place in Gibraltar,” he said.

“They want to have everything ready but may prefer not to make a definitive move for the next 12 months depending on the exact transitional arrangements.”

According to the senior executive, the final form the Brexit agreement will take is the key to what Gibraltar’s role will be post‐Brexit.

“The issue at the moment is knowing what the final position is going to be. Exactly what relationship will the UK have with the rest of the EU?” he said.

However, he was pleased that the Prudential Regulatory Authority (PRA) appears to be working diligently to provide clarity regarding the situation.

“The Bank of England published a Consultation Paper in December 2017 on its proposed approach to authorising and supervising third country insurers that carry on insurance business in the UK through a branch or by forming a subsidiary. This is aimed at EEA insurance companies that can currently passport into the UK under freedom of services but on the presumption that there will continue to be a high degree of supervisory cooperation between the UK and EU.” Ashton said.

“However, as these are still proposals we don’t know exactly how such branches will be regulated, or the timing to set up such a branch. But we do know that such branches will not be available to insurers conducting material retail business.

“All continental insurance companies that have books of business in the UK will be evaluating their positions. An insurer with a small book of business may decide it is not economic using a fronting arrangement with a separate insurance company. In such a scenario that particular business may become a casualty of Brexit,” Ashton explained.

“A second scenario could be a medium‐ sized book of business that a company wants to maintain with some form of fronting arrangement although this may become too costly to sustain and again may not economic in the long run.

“Thirdly, an insurer with a sizeable book of business is likely to establish a separate insurer in the UK. There is an alternative option and that would be to consider setting up a Gibraltar insurer to passport into the UK, since our model has been proven to work very effectively,” Ashton said.

“Another option for insurers not clear about whether or not they should pursue a third country branch would be to consider establishing a cell within a Gibraltar protected cell company (PCC) insurer. This has the potential to be authorised swiftly as the PCC insurer is an existing authorised insurance company,” Ashton said.

For some continental insurers the use of PCC, which have been in play in the territory since 2001, would be a great fit for their post‐Brexit operations.

“Subject to certain requirements and the classes of business to be underwritten, we believe the existing underwriting business could be transferred into a new cell, and then that cell could be 100% reinsured by the EEA insurer,” Ashton said.

“In that scenario, whether it is a hard or soft Brexit doesn’t really matter, as the cell could be established well before any Brexit deadline and the existing business is retained via the 100% reinsurance of the cell.

“Speed to license, whilst always maintaining a robust regulatory approach, is a core insurance offering in Gibraltar” he said.

While PCC structures exist elsewhere, Gibraltar is unique in its ability to passport directly to the UK.

“Only a few EEA countries have adopted PCC legislation but those PCCs are unlikely to have the right to passport directly to the UK like Gibraltar PCCs post‐Brexit and setting up in Gibraltar has a number of commercial advantages” Ashton explained.

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