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Newcomers confounding Brexit uncertainty as focus intensifies on solvency compliance
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times they fail like any other business: whilst we must do as much as possible to avoid such failures, there will always be the possibility of an insurance failure if a jurisdiction wants to build an insurance industry.”
Ongoing sore
Andy Baker, a senior insurance professional in Gibraltar, commented: “As I am sure anyone in insurance here will agree, the Enterprise failure has wounded our local reputation and it will be an ongoing sore for sometime; competing jurisdictions will be using it against us, but in truth it is just one of several insurance failures that have occurred around the world.”
He felt countries increasingly will “not accept EU passporting into their territories simply by notification, and are now moving towards an individual approval process”. There were several areas of the S2 policy open to interpretation and international meetings have been developed to avoid differ- ences in approach between jurisdictions.
Joe Perdoni, GFSC head of prudential, told Gibraltar International. that, although there were a few firms that had “transitional arrangements” from the start of S2 in January 2016, by June all were compliant. “That isn’t to say some firms are not still struggling with S2; it’s much more complex than S1 and sub- ject to a lot of assumptions firms make on meeting those capital requirements.”
Gibraltar’s insurers (excluding captives) took part in a GFSC-led quality assurance review in March to ensure similar capital assumptions across the market. “Some of those findings mean firms will have to complete calculations slightly differently – some are fairly straight forward, but some firms will have to rework their numbers”, Perdoni explained.
Drilling down.
GFSC chief executive Barrass, added: “As with other insurance regulators, the initial focus of S2 was on capital levels and reserves issues, but since January this year we have been drilling down into other aspects – the approach to risk management and governance - within insurance companies. There will be those companies that just got over the line and they are the ones we will be paying greater attention to.”
Prior to S2, the insurance sector in Gibraltar generally was hovering much more around [lesser] S1 requirements on capital and their governance approach to risk management, she observed.
Premium Insurance was set up in March after a 15-month licensing process by investors, also owning Slovakia’s largest independent insurance broker, because “Gibraltar had an experienced regulator, it was open for business and open to discussion,” declared Baker, who has become local managing director. Premium was the first insurance company licensed after the Brexit vote.
Having decided to open an insurance company in Slovakia, “the regulator [there] was refreshingly open and honest and admit- ted that they didn’t know how to do that,” Baker, a former advisor to the GFSB and a president of Gibraltar Insurance Association, noted. It was recommended they find another [EU] base jurisdiction to passport into Slovakia and the Regulator was comfortable with use of Gibraltar.
Writing only commercial business, Premium is not UK-focused, so if Brexit meant the end of passporting in 2-3 years’ time, “there is no lifeline, but by then there would be a proven track record and capital built up, so [Premium] could re-domicile easily”, Baker observed, or choose to contin- ue with its present arrangement with Artex International, Gibraltar’s largest insurance management business.
Part of A J Gallagher, a Chicago-based company, Artex first bought Heritage Insurance Managers in 2014 and then acquired Quest in mid-2016, merging the two local operations at that time. Steve Quinn, Quest founder, has become managing director of Artex in mainland Europe, which includes Malta, and plans to expand into other EU states, “probably later this year”.
Artex already handles 14 insurance companies and six intermediaries. “We expect to license another five or six enterprises not already present in Gibraltar, even with the prospect of Brexit”, Quinn declared. “The majority of those businesses are UK-focused and we have some people prepared to move here, even if it means they may have to shift to another EU location eventually.”
Ashton declared: “What is interesting is that after a 2/3 months period of people accepting that Gibraltar has to leave the EU, then the government survey of financial services found over 90% of our business is with the UK, showing that as a jurisdiction we had not been as successful as we had hoped in attracting business from the rest of Europe but very successful with business into the UK. I believe the message now is around our access to the UK, the world’s 5th largest economy.”.
Defending GFSC: Samantha Barrass, CEO
the Irish Parliament that suggested not enough had been done by Gibraltar’s regulator to prevent a repeat of last year’s collapse of locally-based Enterprise Insurance, which hit 14,000 Irish motorists.
Enterprise spectacularly failed when the GFSC ordered the firm in July 2016 to cease trading to protect a total of 760,000 policy- holders in six countries after it was believed to be insolvent – the liquidator subsequently appointed, confirmed there was “a
prospective balance sheet deficit of some £96m”.
Samantha Barrass, GFSC chief executive, robustly defended the regulator’s work, saying she had utilised “new powers available to the Commission under Solvency 2 to ensure the Commission has the right information to support our
supervision”. She emphasised: “We proac- tively share information with all the host state regulators of the jurisdictions in which our Gibraltar insurance companies operate and we participate in joint supervision activity.”
The eleven Gibraltar firms passporting motor insurance into Ireland, “contribute 6% of gross written premiums to the Motor Insurance Bureau in Ireland and 2% of non life premiums to the local Insurance Compensation Fund that was set up in 2012 to contribute to the losses sustained in Ireland following the €1bn collapse of the Irish insurer, Quinn,” the government revealed.
By end-2016, Gibraltar firms operating in Eire had contributed some €7m to the Irish compensation schemes and a further €4m+ expected this year. “This will more than meet the estimated losses arising from the Enterprise failure in Ireland”, the government maintained. (Gibraltar firms have also contributed some £350m to UK compensa- tion schemes.)
In April, the GFSC said it “may have been significantly and consistently misled” about the true financial position of Enterprise, licensed in 2004, adding: “The extent of the financial collapse of Enterprise is unprece- dented.”
The Finance Centre’s Ashton was sanguine: “No-one wants failures in a jurisdiction, but it is a fact that insurance companies are there to take risks and some-
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