Gibraltar Maintains Healthy Market Performance with Brexit Uncertainty

Gibraltar's insurance market has experienced significant development over the past decade, with new entrants contributing to growth in the territory's premium base, according to a new report by A.M. Best. Insurers have been attracted to the British overseas territory by the ability to write cross-border business into the United Kingdom and other EU countries, as well as a favorable taxation system.

The Best’s Market Segment Report, titled Gibraltar Insurance Market Enjoys Solid Performance but Brexit Creates Uncertainty, states Gibraltar is a member of the European Union by virtue of UK membership, and when this is relinquished by the United Kingdom, it will also lose any benefits of EU membership, such as passporting rights.

Timothy Prince, director, said, "With over 90 percent of the market's business coming from the United Kingdom, A.M. Best expects companies to be largely unaffected by the loss of EU passporting rights. However, those companies that do write business in the other 27 EU countries will have to make contingency plans or cease to underwrite this business."

A.M. Best observes that overall earnings for Gibraltarian insurers are good and the market has consistently generated a return on equity (ROE) in the high single digits, helped by a relatively high level of underwriting leverage. Earnings have been supplemented by other income and modest investment returns. The ROE metrics suggest that companies are efficiently deploying resources to the benefit of their shareholders, especially during an extended period of low interest rates.

Catherine Thomas, senior director, said the following.

Although market conditions are challenging, there are some potential positives for earnings. Insurers writing UK motor business should benefit from proposed changes to the UK personal injury compensation system as outlined in the Civil Liability Bill. In particular, an increase in the discount rate would likely lead to reserve releases for Gibraltarian companies retaining bodily injury risks. Furthermore, with UK interest rates beginning to rise, insurers will begin to realize additional investment income on invested funds, which represents a key component of earnings for cash-flow underwriters.

A complimentary copy of this briefing is available on the A.M. Best website with site login registration.

Copyright © 2018 A.M. Best Company, Inc. and/or its affiliates ALL RIGHTS RESERVED