The International Underwriting Association (IUA) is seeking regulatory leeway on a proposed threshold after which European carriers with consumer-facing operations would have to convert their UK branches to subsidiaries for Brexit.

The Prudential Regulation Authority (PRA) has since December been consulting on a proposal to supervise European Economic Area (EEA) commercial carriers as third-country branches after Brexit, instead of making them become separately capitalised subsidiaries.

The proposal will relieve most of the 80 EEA carriers operating branches in the UK from the need to convert to subsidiaries that are controlled and capitalised locally. However, it is contingent on what the IUA considers an ill-defined proviso that their operations do not involve retail insurance.

The proposal specifies a threshold of £200mn ($278.4mn) for “Financial Services Compensation Scheme-protected liabilities”, above which the branches would have to become subsidiaries. The IUA fears the relatively low limit could pull in a number of commercial carriers.

CEO Dave Matcham said: “The IUA hopes that such a limit will not be rigidly applied and that other factors offering policyholder protection will also be taken into consideration,” the organisation said in comments released to this publication.

“We would like to see greater clarity about the new factors to be considered alongside current requirements for third-country branch authorisation.”

Overall, however, the executive welcomed the PRA’s plan for dealing with Brexit.

“It suggests there will continue to be a high degree of supervisory cooperation between the UK and EU and that, provided they are not conducting material retail business in the UK, firms may apply for authorisation as a branch,” Matcham added.

In its December consultation paper, the PRA noted that it has a “greater ability to mitigate risks in subsidiaries as it has access to a wider range of supervisory tools and legal powers. Accordingly, we expect a firm above a certain threshold to subsidiarise.”

It also noted that the proposed £200mn threshold for FSCS-protected liabilities as not a “hard limit”.

Despite qualms over the retail threshold, the PRA’s blueprint in the main represented a major unilateral concession to EEA insurers and banks as the regulator marked a pathway for cooperation with peer supervisors. Its plan for the insurance sector mirrors its thinking on banks.

In December the PRA made the proposals subject to Brexit negotiations yielding no unexpected surprises and to it garnering “sufficient supervisory cooperation and assurance on resolution” from carriers’ home state regulators.

In tandem with the PRA December announcement, the UK Treasury said it would legislate to ensure that EEA carriers in the UK could continue to pay claims on existing policies after Brexit.

However, the outlook for contract fulfilment for UK insurers operating in certain EEA countries is less certain, save for those which already have plans to establish EU subsidiaries in train.

The London Market Group noted in November that £6bn ($8bn) of premium written in the London market emanates from carriers with an EU base.

About 2,400 EU nationals work in the London insurance market out of a workforce of 52,000, while EU carriers have 6 million policyholders in the UK.

The PRA began accepting applications for branch authorisations at the start of the year. It expects about 200 applications between now and March 2019, up from an average of 12 a year.

Its consultation on the branches proposal ends on 27 February.

The US property and casualty sector slumped in the first nine months of the year to deliver a $20bn underwriting loss after a trio of hurricanes pushed the industry combined ratio to the highest level in five years, according to rating agency AM Best.

Cat losses had already reached $38.4bn before the beginning of the fourth quarter, which brought Hurricane Nate in the Gulf of Mexico and wildfires that ravaged California.

The claims bill is almost double the figure from last year, climbing 89 percent, and higher than AM Best’s $36.1bn estimate for full year 2012, which includes Hurricane Sandy.

As a result, AM Best estimates that catastrophes added 9.8 points to the sector-wide combined ratio, a significant increase on the 5.4 point estimate the rating agency forecast last year.

The events pushed the industry’s combined ratio to 104 percent in the first nine months of the year, up 4.3 points from the same period in 2016.

Stripping out reserve releases for the latest period exposes a combined ratio that is even further in the red at 105.7 percent.

The underwriting loss calculated by AM best for the year so far is almost 10 times the $2.3bn deficit the rating agency reported this time last year.

It said that an 11.3 percent uptick in incurred losses for the period more than offset a 4 percent increase in net premiums earned.

“The industry benefited from a $2.5 billion increase in net investment income earned, which was negated by a $4.1 billion loss in other income, reflecting the impacts of a retroactive reinsurance contract entered into in February 2017 by AIG and National Indemnity,” AM Best said, referring to the Berkshire Hathaway subsidiary.

The rating agency said – for the first nine months of 2017 – the deal helped drive down the industry’s total pretax operating income by 65 percent to $10.8bn.

But, despite a $7.9bn decline in net income, industry surplus grew to $699.8bn during the period driven by $11.2bn in unrealized gains, mostly from Berkshire Hathaway-owned firms

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Project Accountant contractor with knowledge of Lloyd’s syndicates, Managing Agencies and P&C insurance required for Finance Transformation Project with successful London market insurance company.

 Working on a Financial Close Reengineering project you assist with the implementation of a Data Store (US GAAP, UK GAAP, SII / Solvency II) and Global Data Warehouse (MI, Underwriting).

 12 month project will include requirement gathering, data reconciliation, implementation and testing.

 Applicants must have strong systems / project experience within the London market / insurance industry. ACCA, CIMA, ACA qualified.