Brexit had minimal impact on capacity crunch: GDV

German risk managers have not suffered from a loss of capacity caused by an exodus of UK-based insurers because of Brexit, according to new figures from the German insurance association (GDV). Pre-Brexit, UK insurers were by far the biggest source of foreign-owned capacity on offer to German customers, with the business generally conducted on a freedom of services (FOS) basis. This was no longer possible after Brexit and some feared this would lead to a loss of valuable specialty capacity as the London-based international carriers worked out how to cope with the new conditions. But according to data from BaFin, the financial supervisor, UK-based insurers adapted quickly and generally now write the business through branches in other EU countries such as Ireland, Luxembourg or Belgium, as is the case with Lloyd’s. The GDV reports that EEA insurers continue to operate their German business primarily through German subsidiaries with a BaFin license. However, its analysis finds that many also use the so-called European passport, which means they are regulated by a supervisor within another European Economic Area (EEA) nation. “In recent years there has been a significant decline, especially among companies that are registered for the free movement of services in Germany. A key factor here was Brexit, which caused British insurers to lose their European passport. In 2015, the year before the Brexit decision, the UK was still the most important country of origin for passport insurers,” stated the GDV. UK insurers accounted for a third of the EEA branches in Germany in 2015. Some 162 UK insurers and 19 insurers from Gibraltar, which are also subject to Brexit, were registered for the free movement of services in Germany at that time. At the beginning of 2023, BaFin listed 73 German branches of insurers from other EEA countries in its company database. With 53 branches, the largest portion operate in the P&C business while 14 branches are active in life insurance. Only six branches are registered for reinsurance business. A total of 648 insurers are registered for FOS business in Germany. “In addition to France, some smaller countries, which have established themselves as centers for European business and through which insurers bundle some of their EEA business, are of great importance as countries of origin,” noted the GDV, presumably referring to specialist domiciles such as Ireland, Luxembourg or Malta. According to BaFin, the passporting business of EEA insurers accounted for 5.1% of the total insurance business in Germany based on 2021 figures. The GDV noted that this value has remained "surprisingly stable" over the last few years, with the majority of the business done through branches. “The decline in the number of insurers operating in Germany with the European passport is therefore not reflected in a loss of market share. This reflects the fact that many British insurers that were active to a substantial extent in Germany are now continuing their business through a subsidiary in another EEA country (often from Ireland or Luxembourg),” explained the GDV. It said that the European passport has proven a useful tool for risk managers attempting to secure capacity during the recent hard market. “EEA insurers who operate with the European passport increase competition in the German insurance market. In this way, additional insurance capacity can flow in from abroad, e.g. in times of a ‘hard market’. The market entry and exit barriers are lower in the passporting business than when founding a new insurer under German supervision,” it stated. “EEA insurers also contribute to a broader range of products and greater innovation on the German insurance market. For example, some of the insurtech start-ups that are active as insurers in Germany are based in another EEA country and offer their German customers insurance cover in branch business,” added the association.

Brexit had minimal impact on capacity crunch: GDV

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