Brexit Opportunities, More M&A: Clyde & Co.’s 2017 Predictions, Part 1

By | December 19, 2016

M&A and Brexit will be major factors for the global re/insurance industry over the coming year, according to predictions from the insurance team at the international law firm Clyde & Co.

Andrew Holderness, a partner in Clyde & Co.’s London office, said M&A will remain a key objective as insurers pursue growth in today’s ultra-competitive, low-interest rate environment.

“Despite this, there was a dip in M&A activity in 2016, partly due to a natural cooling down in a market that hit a three-year high in the first half of 2015 and challenges in finding the right target at the right price.”

M&A will remain a popular route for companies looking for consolidation, diversification and geographic reach, he said, noting that there also will be increasing interest in other [organic] routes for growth, such as entering new markets by establishing a branch or subsidiary.

“In Singapore, for example, we are seeing an increase in interest from international re/insurers looking to set up shop and establish a base for wider access to markets across the region,” Holderness continued.

“Likewise, Miami is emerging as a regional hub for Latin American and Caribbean re/insurance business – attracting a number of international players who are drawn to the city’s deep connections with, and accessibility to, the region.”

Another option for re/insurers is entering into a joint venture with a local partner, he affirmed.

“The raising of foreign direct investment limits in markets such as China and India is offering foreign insurers greater access to some fast growing markets, leading to an increase in international insurance businesses raising their shareholdings, something which is set to continue in the coming year.”

Turning to the impact of Brexit, Holderness predicted that the UK’s exit from the European Union “will act as a further trigger for M&A.”

“Many businesses will be considering transactions to create a platform within the EU so that they can continue to access business that might be harmed if passporting rights are rescinded,” he added.

Brexit Creates Opportunities for France

Brexit was also the subject of an article from Yannis Samothrakis, partner in Clyde & Co.’s Paris office, who said France will continue to position itself as a top choice for re/insurers looking to establish a a base in the European Economic Area as a result of Brexit.

“French regulators have announced measures designed to woo British businesses to relocate to Paris in preparation for a ‘hard’ Brexit,” said Samothrakis.

Negotiations for the UK’s exit from the European Union are likely to start in 2017, and re/insurers that do not currently have a subsidiary in a non-UK, EEA country are investigating their options, he said.

“Recent initiatives have positioned France as a credible alternative to more obvious contenders such as Ireland, Luxembourg and Malta,” he continued. “In an unusual move, the French financial markets regulator (AMF) and the banking and insurance supervisor (ACPR), issued a joint press release promising red carpet treatment to anyone wishing to establish an insurance company in France post Brexit.”

For existing activities already supervised in the UK, the licensing procedure may be simplified and expedited by using documents already available in English such as forms that have been submitted to the UK supervisory authorities…, Samothrakis affirmed.

“In addition, an English-speaking contact is to be appointed to guide applicants through the procedure starting with the pre-authorization period and to provide all necessary information to ensure the smooth processing of the application,” he explained.

Samothrakis said that other factors make France an attractive choice for an EU headquarters: “a fairly sound and stable insurance and reinsurance regulatory framework, a qualified workforce, the key actors all being in one place and, of course, a good quality of life!”

U.K. to Develop ILS Market

Moving back to the UK market – once again with a Brexit flavor – is a discussion of upcoming regulation on insurance linked securities (ILS).

Stephen Browning, a partner in the firm’s London office said ILS regulation will be a bellwether for London’s competitiveness during 2017 and beyond. “UK regulators must get it right if the London market is to innovate successfully post Brexit,” he said.

“The publication of the draft Risk Transformation Regulations 2017 and associated draft regulatory materials in late November was warmly welcomed by the London insurance market as giving very positive support for the market’s growth agenda, the importance of which has only been heightened by the Brexit vote,” he said.

Browning explained that the UK Treasury is consulting on the draft regulations until Jan. 18, 2017, “which will provide for the formation and registration of protected cell companies to facilitate the development of multi-arrangement ILS vehicles in the UK, and associated tax regulations.”

Meanwhile, the Prudential Regulation Authority and Financial Conduct Authority are jointly consulting until Feb. 23, 2017 on the details of their proposed framework for ILS.

“We predict continued momentum in early 2017 towards finding the holy grail of an ILS regime for the U.K. that is fully competitive with those already offered by other domiciles,” Browning went on to say.

“Speed to market will undoubtedly be critical to London becoming an ILS hub, and, so far, the regulators have said that it should be possible to authorize straightforward proposals, supported by good quality documentation, within a period of six to eight weeks,” he confirmed.

“It remains to be seen whether this and other aspects of the authorisation and supervision regime will result in an ILS offering for the UK that will allow it to compete on level terms with the established ILS jurisdictions.”

Tomorrow’s article on Clyde & Co.’s 2017 predictions includes predictions on U.S. insurtech, Australian D&O and emerging opportunities in global markets.

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