UK Marine Insurers Prepare for Post-Brexit Landscape

City of London financial district, 2015 (Kim Hansen / file image)

By The Maritime Executive 07-23-2018 05:54:57

UK maritime insurer London P&I Club is taking out an insurance policy against the business risks of Brexit by opening a subsidiary in Cyprus. The European market accounts for nearly two-thirds of London P&I's business, and a Cypriot entity would still be able to operate under EU rules with EU clients in the event that a "hard Brexit" impedes cross-channel transactions. 

London P&I, which has been serving the UK's maritime sector since the dawn of the steamship era, told Reuters that it is now obtaining the necessary licenses from Cypriot authorities and setting up its new operations in the island state. 

Britain's financial services sector relies heavily on a European client base, and it has lobbied heavily for a Brexit deal that ensures continued market access. However, successive British proposals for an open-market agreement for finance have met with disapproval from Brussels. 

On Friday, lead EU negotiator Michel Barnier rejected UK Prime Minister Theresa May's latest plan for post-Brexit financial ties. Her government had proposed a system of "enhanced equivalence" involving mutual recognition of financial regulations between the EU27 and the UK, similar to "equivalence" arrangements that the EU has with the U.S. and Japan. Under May's proposal, though, the EU would have had to give Britain a longer period of prior notification before any cancellation of the agreement. Barnier told media that this was not acceptable, since it would effectively allow the UK to set the terms of an EU policy. "Equivalence" has historically been a trade benefit that Brussels conveys upon its close partners, and the existing arrangements have a one-month cancellation period. 

May's "enhanced equivalence" plan also faced a lukewarm reception at home. The City of London - the local government for the heart of London's financial district and a key force in financial services lobbying - opposed the plan, even before the EU rejected it. "With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy. It's that simple," said City of London policy chair Catherine McGuinness earlier this month. 

Last week, UK's bank regulator warned London's financiers to be prepared for a "hard Brexit" in the event that May's government cannot negotiate a transition period with the EU. Earlier this year, the European Commission issued a similar warning about the post-Brexit landscape. "There will be no Single Market access [after withdrawal]. Operators in all financial services sectors need to prepare for this scenario if they wish to ensure that there is no disruption in their current business model and that they are in a position to continue serving of their clients," the EC wrote.