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The UK’s vote to leave the EU came as a shock to many in Bermuda. Mark Allitt from KPMG delivers some reassurance about its likely consequences to Bermuda:Re+ILS.
When the news of the narrow vote by the UK electorate to leave the European Union (EU) came through, the pound sank, other currencies fluctuated and a lot of people pinched themselves. Now that some time has passed, it’s important to get a little perspective.
“Change of this magnitude, such as Brexit, is quite rare,” says Mark Allitt, director, advisory, at KPMG in Bermuda. “It has created significant uncertainty—but I’m upbeat about Bermuda’s position. This is a chance for Bermuda to once again prove itself to the global financial industry.”
Allitt points out that the stakes are high—Europe is the Island’s second largest market after the US. However, he adds that Bermuda already has some major advantages on its side, not least being the fact that it was awarded Solvency II equivalent status earlier this year.
“Solvency II equivalence coupled with Bermuda’s sterling reputation make for a solid pitch for Bermuda,” he says. “Going forward, depending on the negotiations between the UK and the EU, Bermuda may have to divide its business strategy for Europe into two camps, one being the EU and the other being the UK. Both are very important for Bermuda.”
According to the Association of Bermuda Insurers and Reinsurers (ABIR), Bermudian companies already have a significant manpower footprint in Europe, with almost 10,000 people being employed by ABIR members there.
“Companies should be starting to stress-test their businesses, looking at just what might happen on the scale of possibilities based on their existing structure and footprint.”
“Europe is a hugely important market for Bermuda,” Allitt says, “so Bermuda needs to build on the relationships and reputation it has already with Europe. The UK has been an important voice supporting Bermuda within Europe.
“There are many unknowns regarding how Brexit may ultimately look, but what Bermuda as a jurisdiction does know is that it needs to build on its position within Europe, as the UK will most likely be preoccupied with negotiating its own future.”
However, it’s hard for businesses to plan at the moment with nothing set in stone. UK prime minister Theresa May has indicated that Article 50(2), which starts formal talks for the UK to exit the EU, will not be triggered before the end of March 2017, and the talks are expected to take at least the two years as provided in the statute. Allitt urges companies to stay calm and do nothing rash.
“However, what we’re advising businesses do is to start to consider the many potential ramifications that could come from the UK electorate’s decision to leave the EU,” he says.
“Companies should be starting to stress-test their businesses, looking at just what might happen on the scale of possibilities based on their existing structure and footprint. There’s a host of things to think about from their ability to protect their efficient access to markets, and human capital impact through to maximising the efficiency of corporate structure, plus regulatory and tax considerations.
“If groups with UK insurers that passport across the EU or write on a freedom of service basis need to restructure this will not be quick. For the largest groups it could take 18 months. They will therefore need to be in a position to start implementation well before we have clarity on whether there will be any Single Market access for the UK,” he says.
Allitt agrees that the Brexit vote is a distraction for the industry, coming as it does when the market is soft, rates are low and investment returns even lower.
“It’s a big distraction from companies’ other strategic priorities,” Allitt says. “However, change can create opportunity and I believe that businesses that lead from the front could stand to gain a competitive advantage.”
According to Allitt, KPMG has created a global Brexit team across its network of offices.
“We have a focus group with representatives from more than 70 countries collaborating to ensure that we have the most informed views to help our clients navigate through the uncertainty,” he says. In addition KPMG is running periodic seminars to update clients on developments and to deliver guidance and views on how those developments might impact businesses.
“Bermuda plays a key role in the insurance and reinsurance industry and Brexit certainly doesn’t change that. I am confident that Bermuda will continue to offer innovative solutions to the needs of the industry and I see no reason for it not to play a role in facilitating businesses to adapt in light of the UK’s departure from the EU.”
KPMG, Bermuda, Mark Allitt, Insurance, Reinsurance, ABIR, European Union, Brexit, Solvency II, Europe, UK, Regulation, Risk management