Mr Wiener, the EU Brexit negotiations are proving anything but constructive – how do you see the outcome?
Klaus Wiener: As much as I hate to say it, given the lack of progress in the negotiations and in the interests of business prudence, I have to assume a cliff-edge scenario, i.e. an uncontrolled and unregulated exit for the UK. The interests of the UK and EU are simply too far apart for an agreement to be reached. The UK wants its political independence back while maintaining close ties with the single market. If the EU agrees to that, it runs the risk of other parties demanding the same.
What would that mean for the insurance sector?
Wiener: If an EU Member State authorises an insurer to conduct business operations, this approval applies throughout the EU, i.e. not in the UK from the end of March 2019. If we work on the basis of the cliff-edge scenario, some German insurers would have to think about setting up subsidiaries in the United Kingdom. Otherwise they may lose their authorisation to operate there post-Brexit. However, setting up a subsidiary comes with added costs. An alternative would be to transfer the portfolios, that would have to be set in motion quickly.
Who would be worse off in a no-deal scenario? British or German insurers?
Wiener: Looking at the whole insurance sector, it would appear that German insurers will be affected a lot less than their British counterparts. UK insurers have used passporting a lot more than other EU insurers. They have also sold many more contracts – especially life insurance policies – on the European mainland. German passporting is small in comparison, as a proportion of total premium income achieved by primary insurers supervised by BaFin. For all the countries in the European Economic Area, it amounts to a mere 2.25 percent of total premium income, 0.68 percent of which is from the UK.
Does that mean some insurers are taking Brexit “too lightly”, as Frank Grund, an insurance supervisor from BaFin, suspects?
Wiener: BaFin has our sector under constant analysis and provides early warning of potential danger, which is good. However, I wouldn’t say insurers or other industries are taking Brexit too lightly. Businesses are worried: our association and the European insurance federation Insurance Europe have set up Brexit task forces, as has, incidentally, the BDI which the GDV is also a member of. Moreover, manufacturing is more susceptible to the impact of Brexit than services, including insurance. Take, for example, a multinational like Airbus with production facilities in France, Germany and the United Kingdom.
So it isn't really that bad?
Wiener: Relative to other industries, possibly not. That doesn’t mean, however, we can just sit back and wait. Whatever the outcome of the negotiations, time is already short. And nothing has been decided yet. That’s why we are preparing for an extended transitional period so German insurers can adapt to the new operating conditions. That applies especially to in-force insurance contracts, for which we want a grandfathering arrangement. Although German insurers don't have many contracts with UK customers, they still want to honour their commitments under those contracts. One way to do that is to found a subsidiary or third country branch in the UK. Should that prove impossible, for whatever reason, we need rules on which to base an orderly transfer of these contracts, to British companies for example.
That sounds very bureaucratic…
Wiener: It is. That's why the German economy is doing all it can to ensure we have straightforward solutions. Ultimately we need to retain as many of the single market's unique features as we can: even if unrestricted market access will no longer apply, the same competitive conditions, close cooperation with competition and supervisory authorities, an unbureaucratic approval process for sending employees of international companies on assignment and identical supervisory system rules are important and desirable. However, we can't bear the burden of extra reporting or even a risk buffer for the British business of German insurers, as advocated by the European supervisory authority EIOPA.
What would you most like to see from the negotiations going forward?
Wiener: The emergence of transparent operating conditions as quickly as possible – for the sake of European companies and, in particular, for the sake of investors. As one of Germany's biggest investors, insurers naturally have no interest in any market unease, let alone the prolongation of the massively distorted interest rate situation. That would have an indirect impact that might be a lot worse than the direct consequences of Brexit.