Trade negotiations are a way of removing barriers to trade and gaining market access to other countries.
Lloyd’s is active in promoting the benefits of free trade and removal of regulatory and market barriers to (re)insurance. Submissions to national and international policymakers and meetings with key government representatives are some of the tools we use to draw policymakers’ attention on trade barriers in insurance and reinsurance.
We are seeing an increasing worldwide trend for reinsurance protectionism. There are many territories around the world which have either implemented, or are in the process of implementing, barriers to the transfer of risks through global reinsurance markets. Such barriers reduce competition leading to reduced customer choice, higher reinsurance costs and less capacity over the long-term horizon. These reinsurance trade barriers and market access issues include but are not limited to:
- Restrictions on the ability of reinsurers to freely conduct business on a cross-border basis, thus limiting the capacity of global reinsurers to spread risk globally and to prevent domestic concentrations of risk.
- Requirements for reinsurers operating on a cross-border basis to collateralise or localise assets, preventing the global reinsurance market from transferring and spreading risk on the basis of a competitive, level playing field across borders.
- Barriers to the establishment of branches, subsidiaries and operations restricting the ability of reinsurers to deliver their full economic benefit by providing local underwriting expertise and direct services to transfer risk out of domestic markets on an open and competitive basis.
- The use of discriminatory and anti-competitive mechanisms such as compulsory cessions to domestic entities, and systems of ‘right of first refusal’, limiting the competitive capacity of global reinsurers to operate on a level playing field. Such practices concentrate risk domestically, whilst limiting customer choice.
Whilst a member of the European Union, the European Commission was responsible for negotiating bilateral and multilateral trade agreements on behalf of the UK and other member states under the EU’s Treaties. Since the UK’s departure from the EU, trade agreements are negotiated by the UK government without any involvement from the European Commission.
The UK seeks to increase access to overseas markets and to promote greater regulatory coherence and consistency in financial regulation through trade negotiations with key commercial partners.
Current trade negotiations for a Free Trade Agreement (FTA) with the UK include Mexico and Canada. Furthermore, in 2021 the UK Government applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which is an FTA, signed in 2018, with a current membership of 11 ‘Pacific’ countries.
Covered agreement: Under the US Dodd-Frank Act, a “covered agreement” is an agreement between the US and foreign governments on insurance regulation. This could help to eliminate US requirements that EU reinsurers (including Lloyd’s underwriters) hold collateral in the US to cover liabilities arising from reinsurance.
The US-UK Covered Agreement was signed in December 2018 in order to provide regulatory certainty and market continuity following the UK’s departure from the EU. This Covered Agreement reduces burdens on insurers and reinsurers while maintaining prudential standards and enables customers to protect themselves efficiently against risks.