Brexit prompts 13-point drop in L&G’s Solvency II ratio

Turbulent financial markets have caused Legal & General’s (L&G) Solvency II Regular_star_polygon_13-5.svgcapital requirement (SCR) ratio to slip to 156% with a capital surplus of £4.9bn ($6.5bn), down from 169% and £5.5bn respectively at the end of 2015.

Responding to a near 30% drop in its share price since the announcement of the Brexit vote on 23 June, the UK insurer clarified its solvency position and the moves it took to rebalance its portfolio ahead of the referendum.

“Legal & General’s central planning scenario, ahead of the referendum, was for a 50-50 probability of a vote for the UK to leave,” L&G said on 28 June. “We positioned our balance sheet accordingly to reduce risk for our customers and shareholders.

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Worldwide: There is life after Brexit

In the eve of the EU Referendum I published a briefing note about the potential Brexit impact on the Gibraltar insurance industry (entitled “what could Brexit mean?”). This update is intended to provide further commentary now that the 1456234290-31vote is over.

There is no reason to believe that following the resignation of David Cameron as Prime Minister, his successor will not put in motion the formal process for the UK’s exit from the European Union. That formal process will commence with the UK’s notification to the European Council of its intention to withdraw in accordance with Article 50 (the exit clause) of the Treaty.

It is important to emphasise, however, that EU law does not immediately cease to apply in the UK (or Gibraltar) as a result of the outcome of the Referendum. Following the notification, the UK Government has two years within which to negotiate its exit arrangements with the EU.

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What stays – and what goes – in global insurance industry following Brexit

The UK’s historic vote Thursday to leave the European Union prompted several pressing questions for the global insurance industry, which major players are now beginning to answer.51jKa39rkFL

In a rush to assure investors and consumers of their stability, companies from Lloyd’s to XL Catlin have issued statements saying they are fully prepared for the consequences of Brexit, and are equally assured that London will continue as the center for global industry activity.

While the long-term effects of the vote are unknown, Lloyd’s of London Chairman John Nelson stressed that the exit will not take place for two years, and that it is likely to take up to a decade for the UK to repeal all EU legislation and regulations – leaving plenty of time for the industry to adapt.

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Brexit: How Will Multi-National Insurers Sort it Out

Yesterday, the UK voted to leave the EU. Nigel Farage, the UK Independence party head, declared it “Independence Day”. What does this mean for multi-national insurers? The impact is far reaching.1

Consider regulations regarding data, financial product definitions, privacy, and the overall regulatory framework including capital requirements.

Access to Europe’s single market, some 500 million people will be impacted by tariffs which will be placed on transactions over the existing VAT.

And what about employees that come from the EU and work in London? What will be their status going forward? Let’s look at some specific areas:

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Brexit: UK insurers continue to be bound by Solvency II for now

It is understood that despite the UK voting to leave the EU, the Solvency II directive is still applicable to UK insurers until new legislation is established. 

Solvency II is a EU-wide directive aimed at harmonising insurance regulation brexit1across member states, which came into effect  on 1 January this year.

Donald Tusk, president of the European Council, said: “Until the United Kingdom formally leaves the European Union, EU law will continue to apply to and within the UK. And by this I mean rights and obligations.”

According to the Financial Conduct Authority (FCA), much financial regulation in the UK derives from EU legislation until any changes are made, “which will be a matter for the UK government and Parliament.”

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Brexit – How this will impact on UK financial institutions

There are a multitude of issues to consider for financial institutions affected by a vote to leave the EU. We highlight some of these below.

UK financial institutions, including banks, investment managers and insurance Brexit-1companies, which currently rely on “passports” under the Single Market

Directives, such as the Capital Requirements Directive, Market in Financial Instruments Directive (“MiFID”), UCITS Directive, Alternative Investment Fund Managers Directive (“AIFMD”) and Solvency II Directive, may have to restructure their businesses.

Currently an institution, which the Prudential Regulation Authority or Financial…

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5 things you need to know about ‘Brexit’

It remains unclear exactly how insurers and policyholders will be affected by the United Kingdom’s vote to leave the European Union, but several key issues in the exit negotiations between British and E.U. officials, along with factors that could affect the status of the London market, will need to be addressed.2d7c08db-9d87-43ce-921f-513acca86f7e-2060x1236

• Passporting. Insurers and brokers authorized in one European Union member state are able to offer services throughout the trading bloc without the need to obtain licenses in other E.U. countries.

While the end or restriction of passporting might limit competition for U.K.-based insurers in their home market, it could create additional red tape and expenses for insurers that write E.U. business from the United Kingdom.

• Solvency II. The risk-based capital requirements, which have been years in the making, were introduced earlier this year. Aimed at protecting insurance

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The fault lines in Europe’s Solvency II compromise

A developing row over how discount rates are set has reminded European insurers that Solvency II relies on a political deal – and that political deals can be CA2broken.

To make the directive possible, European policy-makers negotiated a compromise to soften the effect of a market-based regime on certain pockets of the industry – taking the form of the matching adjustment, volatility adjustment and transitional measures.

Few would suggest reversing any of those, but the European Insurance and Occupational Pensions Authority (Eiopa) is proposing changes to how the directive’s ultimate forward rate (UFR) is calculated – an idea that is proving highly controversial.

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EIOPA updates on the financial stability risks

The European Insurance and Occupational Pensions Authority (EIOPA) published its June 2016 report on financial stability in the (re)insurance and occupational pension fund sectors of the European Economic Area.riscos-dos-investimentos-620x427

EIOPA observed an ongoing “extremely challenging macro-economic and financial environment”.

Monetary policy and low crude oil prices imply a protracted low yield environment in the short- to medium-term. In this environment, the “double-hit” scenario cannot be ruled out.

Both risks – low yields and a “double-hit” – will be in the focus of EIOPA’s Insurance Stress Test 2016.

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Outsourcing under EU Solvency II regime

The EU Solvency II Directive (2009/138/EC) was transposed into domestic Irish law by the European Union (Insurance and Reinsurance) Regulations 2015.(1)

The Solvency II regime provides welcome clarity regarding the functions thatwhy-outsource an insurer may outsource and the requirements which must be complied with before outsourcing.

This is particularly welcome news for those insurers which rely heavily on outsource service providers.
Where a critical or important function or activity is being outsourced, prior notification must be made to the Central Bank in a timely manner (at least six weeks before the outsourcing is due to come into effect).

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