Brexit

The United Kingdom’s Prudential Regulatory Authority (PRA), part of the Bank of England, said it will keep its policy related to insurance-linked securities (ILS) and insurance special purpose vehicles (iSPV’s) under review as the Brexit transition proceeds, in case any changes are need.

Prudential Retirement, part of Prudential Financial, Inc., says that the UK pension risk transfer market hass experienced a rush to finalise de-risking deals in advance of Brexit, evidenced by its closing of a further $2.6 billion of longevity reinsurance transactions at the start of 2019.

Global reinsurance firm Swiss Re has established a new European entity in Luxembourg named Swiss Re Capital Markets Europe, S.A. to ensure it has trading continuity for derivative contracts in the weather and energy risk transfer space, as well as ILS instruments, after Brexit.

Artemis understand that there are a number of new efforts to use the UK’s ILS regulatory regime underway, with a range of transactions mooted and being explored or actively worked on currently. At the same time the UK regulator has noted the importance of ILS to the UK’s competitiveness.

Brexit, or the impending exit from the European Union by the United Kingdom, has been seen to be deterring some potential sponsors of insurance-linked securities (ILS) transactions under the recently launched UK ILS regulatory and tax framework.

Some insurance-linked securities (ILS) market participants have expressed uncertainty as to whether London’s ambitions of becoming a global ILS hub will be beneficial to investors and the asset class, noting Brexit as an additional challenge for ILS in London.

The fallout from the UK’s vote to leave the European Union, or Brexit as it’s more commonly known, could result in lost business for the London insurance and reinsurance market, unless the UK government can negotiate continuity of passporting rights.

Demand for longevity reinsurance and risk transfer among UK life insurers could rise, as their Solvency II ratios have fallen in the wake of lower investment yields and the fallout from the Brexit vote.

Analysts at J.P. Morgan have commented on the impact the Brexit vote might have on Lloyd’s of London insurers and reinsurers, stressing that while the long-term implications remain uncertain, Lloyd’s players don’t appear overly concerned for the near-term.

In the context of the risk of yields on UK gilts staying low for longer, or getting even lower, increasing following the countries recent Brexit vote to leave the European Union, Hymans Robertson believes pensions may be facing up to 50% more in longevity related liability costs.