Mike Ashurst:

Good morning. This is Mike Ashurst and today we’re delighted to invite Clive O’Connell to talk about the regulatory challenges facing international reinsurers, specifically the implications of the COVID agreements and Brexit. Clive is alone with a unique understanding of the insurance and reinsurance markets, derived from more than 35 years experience. After Clive’s presentation, we will also hear the rating agency perspective on these challenges from Catherine Thomas, who’s senior director of analytics at AM Best Europe.

Clive O’Connell:

Thanks very much for that kind introduction. We’ve got two subjects to talk about today which are both complex, both have great degrees of uncertainty involved with them, and both of them will have considerable impact on the way in which international reinsurers operate, structure their organizations, and work generally over the next five to 10 years. These are the Covered Agreement and Brexit. I’m going to take first the Covered Agreement, primarily because that is, of the two, the somewhat more certain, and it’s also possibly the simpler.

First, let me start with some nomenclature. The Covered Agreement is a term frequently used to describe this agreement, although it is a term primarily American in origin. The actual agreement is called the Bilateral Agreement between the European Union and the United States of America on Credential Measures regarding Insurance and Reinsurance, which is a bit of a mouthful. It’s called the Covered Agreement in the states because it is an agreement which is defined as a Covered Agreement under title five of the Dodd-Frank Wall Street Consumer Protection Act, the Dodd-Frank Act.

In the EU, it’s an agreement under Article 218 of the Treaty on the Functioning of the European Union, TEFU, and often you’ll find that people over in Europe won’t necessarily understand the term Covered Agreement, and so one should bear that in mind always when discussing this concept with Europeans. That is more of an American statement, as I said.

The agreement was signed on the 22nd of September last year, 2017, and it is to be implemented over the 60 months following that date. That’s five years from that date, it should be up and running in full by the 20th of September, 2022. I’ll come back and deal with some issues about the timing and the implementation later on.

This agreement has been a long time in gestation. Obviously transatlantic reinsurance has been going as long as reinsurance has been around, but since at least the second World War, issues that have lead to the Covered Agreement have really come to the fore. It is, on the one hand, one can understand that protectionism and reinsurance can have some merits. Why send all your premiums abroad? Why should people be allowed to use reinsurers in different jurisdictions when there are local reinsurers who can do just as well?

On the other hand, there are significant macroeconomic reasons why international reinsurance is vital. For example, in the United States, significant losses such as the asbestos related claims that have beset us since the late 1970s will carry ongoing until at least 2040, if not later, have created about 275 billion in losses. That is a massive hit even to an economy such as the United States. However, because of international reinsurance, some 87% of those losses have been paid outside the US, and therefore the asbestos industry has provided a fund of money coming inward into the United States for other countries. There can be good macroeconomic reasons for international reinsurance.

We’re seeing the same with large catastrophe losses as well, the bulk of which are paid outside the jurisdiction of which the catastrophe occurs, and this is good for the solvency of local insurers and indeed of local reinsurers. It’s a very positive thing to have international trade. That said, there has been a long period of time when a lot of American reinsurance was sent over to Europe, but European reinsurers underwriting it were at a disadvantage to local reinsurers.

American insurers could only gain credit for reinsurance if either the reinsurer with whom they were dealing was admitted in a US jurisdiction, or if that reinsurer put up collateral, and both of those would prejudice European reinsurers. They would either have to offer letters of credit or seek admission in the US. Some major reinsurers such as Lloyd’s many London market companies did become admitted in the states. Other reinsurers were providing letters of credit at a cost on every risk that they wrote, and there was always a battle going on as to whether or not those letters of credit should just deal with known outstanding reserves or IBNR as well.

There wasn’t a level playing field and there was a lot of advocacy from Europe that there should be, and a lot of advocacy within the US that there shouldn’t be. American reinsurers wanted to preserve their advantage. However, a few things have happened in recent years which has meant that there is an increased encouragement to the US side to go into some form of agreement. Solvency II has played a great part in this, and the way in which Solvency II operates means that there was beginning to be a similar type of protectionism in Europe from America, it was more difficult for American reinsurers to write European business.

Also, the whole concept of Solvency II and risk based capital in America meant that the group was being looked at, the solvency of the group was being looked at, not merely the individual operating arm. For this reason, and also during that whole period of time, consolidation of reinsurers has gone on. Now there are fewer reinsurers, but they are very, very large, and they all operate internationally, if not globally, and for that reason there was more need for some form of deal to occur, and also not the same opposition to a deal from either side.

Negotiations took some time and eventually an agreement was reached during the Obama administration, although the deal was signed during the Trump administration, and the deal will be implemented in part during the Trump administration, and either in his second term or in the administration of his successor. What does the Covered Agreement cover? There are three areas. The first is reinsurance. The second is group supervision, and the third is regulatory exchange of information between the regulators. On the reinsurance side, the Covered Agreement eliminates collateral and local presence requirements as a condition to entering into a reinsurance agreements with a cedent based in the other party’s territory, or that cedent taking credit for the reinsurance.

This is a major step forward. It means, now, that if one’s looking for reinsurance, one can select a reinsurer operating in the EU or the US on the same basis. One doesn’t have to worry where one’s reinsurer comes from. It means that one can spread one’s protections, eliminate accumulation of risk among reinsurers, and make sure that everyone has, probably, a better, more secure basis in reinsurance. There are some conditions that this is subject to.

The first is that there must be at least a capital surplus of 250 million dollars, or 226 million euros, these have been sizable reinsurers, but then again most international reinsurers probably do have a capital surplus of that size, although some specialist reinsurers might be smaller, and they will not benefit by the Covered Agreement. Secondly, there must be a risk based capital ratio of 300% of authorized control level, or 100% solvency capital requirement. Not only must the reinsurers be large, but they must be fully solvent.

They must have a practice of prompt payment. It’s not yet clear exactly how that’s going to be implemented, but that’s going to be a requirement. They’re also going to have to have somebody in the host country who will accept service of process on their behalf. That could be a law firm, it could be an agent, it could be the broker, whoever, but it means the process doesn’t have to be issued and served out of a jurisdiction, it could be issued and served within that jurisdiction.

And finally, consent in writing to pay in full all final judgment is going to be required, and that’s probably a given in any event. The reinsurance changes are quite substantial because they eliminate any need to have a local office, any need to set up a branch. They eliminate any need to put up collateral. They make it a lot easier to write business between countries, and this is significantly important because it means that brokers or cedents looking for reinsurance can pick and choose between reinsurers across the EU and the US on an equal basis, and these days rather than brokers wandering up and down Line Street, or through Lloyd’s, so much business is placed electronically. This opens up a large amount of scope to reinsurers and to reinsured to make sure that they get the right business passing to the right people.

The second aspect is group supervision. With Solvency II, the way in which insurers and reinsurers operating in Europe has been dealt with is that where that company is a subsidiary of a larger international player, not only does the regulator look at the solvency of the subsidiary, but it will also look at the solvency of the group, which means that American companies who have had to comply on a group-wide basis with European regulation. What the Covered Agreement does is to eliminate that requirement. Quite simply, if you’re regulated in the states, your group can be regulated in the states, and only the subsidiary will be regulated in the EU, and vice versa.

It eliminates a lot of regulation, and makes things a lot simpler for insurers and reinsurers who want to do business in each other’s jurisdictions. Finally, on the exchange of information, the Covered Agreement provides for some … the Covered Agreement on the exchange of information provides a framework for mutual support for the exchange of information between supervisory authorities, and recommends in fair detail the way in which that information will be exchanged.

That’s obviously a very good point for regulators who will be able to look at macroeconomic issues affecting insurers and reinsurers on a group basis between them, and hopefully it will eliminate still further the risk of failure by insurers operating in both jurisdictions. Implementation is going to be an interesting issue. There’s a five year timetable. It requires each state to accept it, and each state obviously has its own ability the control its insurance regulation. Therefore, there must be take up by each of those 50 states, plus the territories.

On the EU side it’s a lot easier. EU jurisdictions are obliged to implement and will do so. I suppose that throwing in a little bit of a wobbler into this one is what has happened recently with the G7 and with the American president’s approach to its partners who are in the EU. With the coming of a trade war, a question is put up about whether or not implementation can and will go ahead. It’s something that we’ll have to monitor.

The key point is that the Covered Agreement doesn’t operate yet. It will come in slowly over the next five years, and whether or not it will finally take effect does have something of a question mark hanging over it. We’ll have to wait and see what happens there. And the other thing that affects it is Brexit. Brexit will take the United Kingdom out of the European Union, and I’ll deal later with how that departure will affect Britain’s role within the Covered Agreement.

But moving on now to the issue of Brexit itself, as you no doubt have heard too, too many times, we certainly have in England, the referendum on whether or not Britain should remain part of the European Union took place on the 23rd of June, 2016. It was a binary choice, in or out, and by a majority of 52% to 48%, the vote was out. In March 2017, notice was given under Article 50 of the European Treaty saying that Britain would leave the EU, and that started the process of Britain leaving.

There’s a two year timeframe from that for Britain to leave. Negotiations could not occur before notice was given, and therefore one had to wait until that notice was given before negotiations could start. The first round of negotiations, which is now complete, was on the terms of Britain’s departure. The second round of negotiations, which are currently underway, are on Britain’s future relationship with the EU. Those need to result in a deal, if they can. There’s no certainty that they will result in a deal, and indeed the way that things are going the the moment politically, there is a very real chance that there won’t be a deal.

At the moment, it seems that the British government doesn’t have enough clarity on its own position to negotiate a deal which creates an issue therefore with any negotiations that it might have with the EU. If a deal can be reached, that deal will in turn have to be ratified. There has been a question as to whether or not that deal needed to be ratified by the British Parliament. It’s now looking, although this is actually changing day by day, it is now looking as though it will have to be ratified by the British Parliament, and that ratification could fail if the deal isn’t good enough.

At the same time, it has to be ratified by all the 27 remaining EU countries and their parliaments, and that itself could throw up some obstacles if one of those countries feels that one element of the deal isn’t sufficiently good for them. There are two major obstacles there. All of the European, EU 27 countries, have a veto. At the moment, it has been made clear that unless the Irish are happy with border arrangements between Britain and Ireland, Ireland will exercise a veto. What has not been discussed to such a great extent but still remains there as an issue is the issue of Gibraltar, and the very real possibility that Spain could throw in a veto.

Whatever happens, whether there’s a deal or no deal, on the 29th of March, 2019, Britain will leave the EU. There is, in legal terms, the possibility that Britain could revoke its notice under Article 50, and remain within the EU. Whether or not that could be done politically is a very different question, but at the moment, because no negotiations have concluded on the relationship between Britain and the EU 27 going forward, we don’t know what a Brexit will look like. There are a number of different scenarios.

This is a slide that was put out by the European Commission itself, and it shows the different steps down in relationship the countries that aren’t in the EU have with the EU. You’ll see the first group is Iceland, Norway, and Lichtenstein, who have a very close relationship. They’re members of the EEA, they’re members of the single market, they’re members of the customs union. Britain, according to the red lines laid down by the British government, couldn’t enjoy that sort of relationship, but all of those countries it should be noted have passporting rights within the EU, and therefore their insurers can operate anywhere within the EU.

The next one down is Switzerland, which doesn’t have quite such close links. Swiss ensurers can’t operate within the EU. They have to set up separately authorized subsidiaries within the EU, and so it goes down. You can see Turkey has a much narrower, Ukraine has a relationship, Turkey has a relationship, but all of those according to the EU would not be open to the UK because of British red lines that have been put down about freedom of movement, freedom of capital, acceptance of the European Court of Justice, and other things such as that.

Then finally we get down to the positions of Korea and Canada, and it is possible that Britain could have a trade deal like Korea and Canada have, and a relationship with Europe. Both of those are bespoke relationships. Canada’s trade deal with Europe took seven years to negotiate, and even then was held up for a while when one regional parliament within Europe objected to one issue within it, which raises the specter that, in reality, unfortunately, come March next year, we may well be in a no deal situation.

If a deal is struck, there will be an interim period of implementation, and it looks as though there’ll be some stop gaps for just under two years, but if no deal is struck, we are straight out without a deal, and will be working with the European Union through World Trade Organization rules, and that will be the hardest most awkward Brexit one could imagine. It’s been posited by government sources as extraordinarily expensive and possibly catastrophic to our economy, but at the moment companies working within Britain and dealing with Europe have to work on the most pessimistic possible basis for their planning, and everybody is planning around a no deal Brexit.

How dos that affect insurance? Well, the current position is that if you’re regulated within one EU jurisdiction, you have your regulator in your home jurisdiction, you have your capital in your home jurisdiction or wherever else you want it in the EU. Because of reciprocal enforcement of judgment’s legislation within the EU, a judgment in one jurisdiction will be enforced in another jurisdiction. Companies can passport throughout the EU, and that means you have one regulator dealing with your position for the whole of the European Union.

A company can be set up in Malta and write business in Finland, purely and simply like that. That’s how it operates. Brokers, MGAs, other financial advisors who are regulated also get set up in their own jurisdiction, and can set up offices, branches, or whatever, throughout the EU, and operate there under a pass porting mechanism. Gibraltar, which is a British overseas dependency, clinging onto the edge of Spain, has operated as part of the EU, it is part of the EU, but it’s part of the EU because it’s British.

The way in which Gibraltar is operated means that many insurers in recent times have set up in Gibraltar rather than in the UK. It takes somewhere in the region of two to three years to get authorization from the PRA in London. In Gibraltar, you can set up a new insurer in six months, and for that reason many people have found it a lot easier to set up there, and that’s going to be an interesting dynamic going into the future of the relationship between Britain and the rest of the EU.

Under a no deal Brexit, UK insurers will only be able to write business in the UK. EU 27 or European economic area insurers will not be able to write in the UK. Brokers and MGAs will only be able to operate in the countries in which they are authorized, or if that is the UK, obviously they will be able to operate throughout the EU 27. If you’re a company that have been operating currently from one jurisdiction and have been operating throughout the EU, particularly into the UK, or you’re a UK company operating elsewhere, what one needs to do in theory is to establish a subsidiary in the other jurisdiction.

In the UK, or in the rest of the EU. A subsidiary, not a branch, because if you set up a branch, you might find yourself getting double solvency margins imposed upon you, because Britain will continue to use a Solvency II equivalent after we come out of the EU. People want to set up branches, obtain the necessary authorization, and then do a statutory portfolio transfer of the, for example, UK business, into their new UK subsidiary. The problem, though, is time.

Now, there are 500 UK authorized companies. Take out from that number of 500, a number who are purely domestic, and also discount the UK subsidiaries of international groups who already have operations in Europe. What’s happened with the remainder is that they have established subsidiaries and Europe. In Belgium, and Paris, Luxembourg, and Dublin, Amsterdam, Munich, maybe elsewhere as well, and they’ve set those up in order to do their EU business through that hub in Europe. Lloyd’s has also done this, they’ve set up in Belgium, but what Lloyd’s are doing is setting up an insurance company in Belgium which will be reinsured automatically to Lloyd’s syndicates.

That operation will rely upon Europe recognizing the EU jurisdiction, and Lloyd’s in particular, as proper security, and giving full credit, full reinsurance, with Lloyd’s. But UK authorized insurers have been actually very quick off the mark to set up their subsidiaries throughout Europe. On the other hand, we have some 703 insurers from the EU and EEA who have been passported into the UK. As I’ve said, all of these ought to have set up subsidiaries by now, have been looking at getting those subsidiaries authorized, and then doing a statutory portfolio transfer into those subsidiaries.

The problem has been that it takes between two and three years to get authorization. As for the PRA dealing with about three or four new insurance authorizations over the past five years, as I said, most new ones have gone through Gibraltar, but this would require a huge number to do that. The PRA simply could not cope, and could not cope before March, 2019. Added to which, the part 7 transfer that will be required couldn’t be done in the time.

Part 7 transfers typically take about a year. Before Solvency II came in, a year before Solvency II came in, the PRA announced that if people hadn’t got their applications in by then, they simply weren’t going to happen before Solvency II was initiated. The idea of the PRA being able to deal with 703 applications in the period of a year is not realistic, but the bigger problem then comes, the part seven transfers only operate and are only available within the EU EEA.

They cannot be done internationally, and that will create a problem, a sticking point for the future. A complicating political issue was that, if you remember just about a year ago, there was a horrible, monstrous fire which killed 70 or 80 people in a tower block in west London, the Grenfell Tower disaster. The Grenfell Tower was insured, the Royal Borough of Kensington-Chelsea, which owned the Grenfell Tower, was insured by a Norwegian insurance company which had been passported into the UK.

That company wrote a five year policy beginning in, I think it was April, last year. And the Grenfell Tower, and all of the losses surrounding it, are protected by a company which after March, 2019, may not be authorized in the UK, and that creates a very awkward issue. There’s no practical solution to it other than the one that the PRA have come up with, and that is to ignore the problem.

They will treat EEA and EU insurers who have been passported in up to now as still being authorized, provided that they’re authorized by their home jurisdiction, and things will go on as they have gone on. The same isn’t true the other way around, but luckily UK insurers have taken steps to get around the problem. Brokers and MGAs will also face problems, they won’t be passported won’t be able to passport in the future, and they are setting up subsidiaries and getting local authorization from those subsidiaries.

There are other issues that come in. Staff. Here in London, a large percentage of financial services staff are European citizens who have come over here because of freedom of movement. I remember talking to a senior officer at a large broker here who said that 40% of their staff were Europeans who had come because of the ability to move under the EU. While those who are already here are likely to be able to stay, in future, recruitment from Europe will not be so easy, and that will create logistic problems for English insurers, and for brokers and MGAs as well.

Existing policies, well, it seems though provided that they are written protecting English concerns, those will be able to be serviced going forward. It remains to be seen quite what happens with policies written in England or the UK, which ensure or reinsure continental Europeans. Global policies in future will have to be bifurcated. They’ll have to be a separate one with an authorized UK insurer, and another one with an authorized European insurer, even though they might be two subsidiaries or two sister companies of the same group.

And then moving on now to the final issues, what happens with the Covered Agreement and Brexit? And the simple answer is it won’t apply to the UK, and therefore any planning that one does with regard to one’s operations in Europe and the way in which one reinsures European concerns, have to in future exclude the UK. This is an example of one of a number of trade deals that the EU has struck, which currently benefit the UK but won’t after Brexit.

There are some 60 different countries with whom we have trading relationships now under trade deals which will disappear in March next year. We’re not allowed to negotiate any new trade deals until we leave the EU, and that puts us into a bit of a hole in the mean time. President Trump has promised that Britain will be pushed to the front of the queue in negotiating a new trade deal. It’s difficult to see that a trade deal could be negotiated very quickly. There are so many different parts to it, and quite frankly Britain is in a position of considerable weakness.

I would imagine that President Trump’s desire to get a good deal for America might put Britain into a position in which they wouldn’t want to accept a deal that was offered to them. One doesn’t know whether or not the Covered Agreement will ultimately apply to Britain as well, will ultimately be determined by a broader trade deal negotiated between Britain and the United States, and whether or not that will occur very much remains to be seen.

What I’d like to do now is to pass over to Catherine Thomas of AM Best to make a few comments from the perspective of a ratings agency. Catherine.

Catherine Thomas:

Thanks, Clive. Very much as Clive’s just done our Covered Agreement and Brexit in turn, and just giving some perspective from where we see the impact of each of the two issues on the ratings of insurance and reinsurance companies. Starting with the EU Covered Agreement, although we see the execution of the agreement as having some potential credit implications for individual rated entities, I’m saying that we don’t really expect those to be sufficiently material to lead to any actual rating actions.

The impact of the agreement on insurers and reinsurers operating in either the US or the EU will very much depend on their individual business models with favorable implications for some and adverse implications for others, as Clive said, for EU reinsurers operating in the US, we see the elimination of collateral requirements as leveling the competitive playing field, and allowing them to operate under the same conditions as US companies.

And the liquidity and the fungibility benefits that stem from this will be a credit positive for these entities. Likewise, the elimination of any local presence requirements for US reinsurers that are operating in the EU does potentially improve the liquidity and the fungibility of their capital. Having said all that, measures that reduce the regulatory burden for foreign companies and promote the cross-border flow of business does increase competition in local markets, and we think that could lead to negative pricing pressure with potentially negative implications for performance of domestic reinsurers operating in either the US or the EU.

At the same time, any increase in the level of competition in the local reinsurance market, between reinsurers, we would expect to benefit the domestic primary insurers as they would be able to take advantage of any subsequent reduction in premium rates. Potentially, for the domestic sector, for the reinsurers, increased competition is a potential negative. For the domestic primary insurers, increased competition with a reinsurer is a potential positive.

When we look at our capital model, we do charge for credit risk and give some credit if there’s collateral posted, for US insurers, a reduction in the level of collateral posted by their reinsurers will increase exposure to credit risk, and therefore the amount of required capital that we demand in our capital model.

I think this would only really increase modestly, so again, no real reaction is likely to stem from that, and although the Covered Agreement means that collateral does not necessarily have to continue to be posted, it doesn’t prevent parties in a reassurance agreement from negotiating the inclusion of collateral, that’s where we see the impact on ratings from the EU Covered Agreement. Turning to Brexit, now at AM Best we haven’t as yet and we don’t expect to take any rating actions as a direct consequence of plans for the UK to exit the EU. Having said that, the associated economic and regulatory uncertainty combined with the prospect of higher barriers to trade means that in overall terms we think Brexit is likely to have a negative impact on the industry.

What we see is that the ability to continue to conduct that cross-border business throughout the EU post Brexit, we see that mostly as a pressing concern for Lloyd’s, the London Market, and for other commercial insurers based in the UK, and what we certainly see, and as Clive made a point as well, that over the past six months in the absence of any clarity as to what a future trade deal is going to look like between the UK and the other EU 27 countries, is those affected insurers accelerating their plans to establish additional subsidiaries in other EU countries, and again as Clive mentioned, not just thinking about how they can continue to access that EU business after March next year, but also taking much more seriously the prospect of not being able to service claims on existing policies and considering those potentially expensive Part 7 transfers of existing EU business to their newly created subsidiaries.

For insurers, the costs and the loss of diversification benefits associated with having to new create a new and separately capitalized subsidiary will create for them both expense and capital inefficiencies. Also, there’s a potential for the fungibility of capital across an insurance group to be reduced, and together these factors will be a credit negative and we would take that into consideration in our ratings of individual group subsidiaries.

Again, the impact is likely to be limited, and rating actions are not expected as a consequence, and we are seeing insurers really looking to minimize potentially the capital, but having to hold in these individual subsidiaries to reduce those capital efficiencies. Also, our analysts are continuing to discuss with rated entities what the prospective changes and the potential constraints on passporting could mean for their competitive positions, and any impacts of that on a company’s revenue or its profitability.

We would take into account, in our assessment of that company’s business profile and in its operating performance, which feeds then through to the rating. For example, if access to either UK or EU business is restricted, this would be a negative for international insurers that are currently using passporting to write business in both markets. Having said that, a clean or a hard Brexit could have positive implications for local insurers if foreign competitors were to withdraw from those individual markets, and there is a subsequent reduction in competition.

That’s really, from our point of view, an ongoing discussion, and still something where there’s very little clarity as to how that will play out. More broadly near and medium term economic conditions in both the UK and the EU will depend on a multitude of factors, many of which lie outside the Brexit negotiations, for example an economic downturn would have a negative impact on insurance premium volumes due to a reduction in demand for life and non-life insurance, and that could have an impact on the profile and on the operating performance of rated insurers, so that’s again something that we are closely monitoring.

Those are my principal comments, and with that I’ll hand back over to Clive for any questions.

Mike Ashurst:

Thank you, Catherine. We have a few questions that have come through. The first one is an easy one for me to answer. It was asked, “Will we be getting supporting documents?” And absolutely you can, and we will also send you the recording of this webinar afterwards. A couple of other questions. One, this one for Clive. Is the Covered Agreement fully finalized in the EU?

Clive O’Connell:

The Covered Agreement has been agreed by the EU and by the US. The US, however, requires ratification by each state. If the states individually do not ratify it, I don’t think it will operate unilaterally, if that’s what’s meant, but at the same time there’s not likely to be any obstruction to the Covered Agreement, and its form being ratified, insofar as it needs to be ratified by all EU countries.

Mike Ashurst:

Okay. Another one. “What does Brexit mean for US reinsurers? Do US reinsurers need approval from the PRA?”

Clive O’Connell:

The position at the moment is that if you are a UK insurer who wants to reinsure into the US, you can choose a US reinsurer. The problem is that since Solvency II came in you might not be able to obtain credit for that US reinsurer, and the Covered Agreement allows you to get credit for that US reinsurer, and that’s fine, and the US reinsurer can be in the US and everything works very well. However, if the insurer is British, after Brexit, the Covered Agreement will not come into effect, and as a consequence, unless there is a trade deal, we could have, and I say it’s could because there’s so much uncertainty here, we could have an issue with not being able to take credit for a US reinsurer.

I’m not sure that the PRA would necessarily be difficult on this one. They might allow UK insurers to take reinsurance from US reinsurers. They might look at each case on an individual basis and investigate the solvency ability of that reinsurer. It remains to be seen. A lot will depend upon macroeconomic issues playing upon the UK regulator. Do they want to encourage relationships with US reinsurers rather than European ones, whatever?

As in any country, what Britain needs is an international diversity of the sources of its reinsurance. One would imagine that the UK regulator would try and find a way. One thing is the UK regulator will have a lot more flexibility than any other regulators, so that will have to wait and see. One thing that could impact upon it is if Britain tries to get some form of recognition of its own solvency platform, the post-Solvency II regulatory platform, with the EU.

And gain, we could be dictated to by the EU as to how we operate, and the EU might accept American reinsurers, but like so much in relation to Brexit, everything is up in the air, nobody knows, and yes, if an American reinsurer set up a branch in London and got it authorized, absolutely that branch could write whatever business it then needed to. Similarly, British government has, albeit belatedly, acknowledged that insurers in Gibraltar will be able to passport into the UK, so again, a swifter, cheaper way of setting up a branch to operate in the UK would be to set up in Gibraltar.

Mike Ashurst:

Okay. Thank you, Clive. Right, we don’t have anymore questions, but before we finish, I just wanted to let you know that tomorrow we’ll be sending you an email with information about the launch of an ICMIF app that you can use to seek advice and share information about reinsurance in the ICMIF community. We’ve already added a discussion topic for Brexit and covered agreements so please feel free to ask questions and continue to discussion via the app, and you may have some questions that you haven’t thought of now.

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