Brexit interview about the economic and political situation in the UK and
impact on Great Lakes
“We have been ready for Brexit for a long time”
Europe and Great Britain are closely linked and have many things in common. Michael Menhart, Chief Economist at Munich Re, and Holger Kramer, Head of the GLISE Brexit Project, talk about the economic and political situation in the UK and what Brexit means for Munich Re.
What do you think of the trade agreement, within the Brexit process overall?
Michael Menhart: The parties were able to avoid a no-deal Brexit – i.e. the worst possible outcome from an economic perspective – literally at the last minute. The deal that has now been made, which is limited to an agreement on goods trading, was the most that could have been achieved with such a short time remaining and given the many complex issues involved. The financial sector was not part of the deal, but that was foreseeable.
So the parties avoided the worst, but many new rules will still apply to the financial sector. Is Munich Re prepared?
Holger Kramer: Definitely! Our project team went through all the realistic scenarios, and we would also have been prepared for a hard Brexit if it had come to that. In this regard, the so-called Temporary Permissions System was very important for our industry. That was the UK’s unilateral approval for European insurers to continue doing business there for three years; it was a kind of emergency provision to prevent any major consequences. On the other hand, British insurers no longer have “passporting” rights in Europe, i.e. the permission to conduct insurance business throughout the EU regardless of local branches; though we knew that was coming.
The UK economy has been among the hardest hit by the corona crisis in all of Europe. What effects do you think the new trade agreement will have on their economy?
Menhart: COVID-19 and Brexit constitute a two-pronged challenge for the United Kingdom. The Brexit referendum had created a dampening effect on the economy even before the coronavirus. And UK economic growth has been slowing since 2016, decoupled from the rest of the EU. Their economic slump in the first half of 2020 was one of the most severe in the western world and the result of a long lockdown. And the second wave is currently jeopardising recovery yet again. Even with the new trade agreement, UK economic performance is not expected to return to pre-Brexit levels until 2022 at the earliest.
What will the Brexit mean for political relations between the UK and the EU, and for Europe's role in the world?
Menhart: Great Britain has tremendous geographical, historical and cultural ties to continental Europe. And it is important to remember that the EU and the UK also have joint and mutually-dependent interests on topics that cannot be dealt with by individual countries alone – for example in international relations and security, or on climate change. So the EU and the UK will continue to maintain close political ties. That will strengthen Europe’s role in the world.
Coming back to the business: how important is the UK market for Munich Re? Is there a risk of our losing any business?
Kramer: Munich Re Group generates a substantial premium volume in the United Kingdom. We write life and non-life reinsurance as well as primary insurance there. Munich Re started preparing early; we split up underwriting operations and have been writing EU business in Munich, because European business may no longer be written in London. So we were well prepared for Brexit.
What will be changing for our colleagues?
Kramer: Both staff delegated to the UK and British colleagues here in Munich will be receiving new conditions for residence, and travel will become more difficult. The most important change is that, as of 1 January 2021, our colleagues in London are no longer able to write European business; that business is shifting to Munich.
Does that mean we need fewer underwriters in London?
Kramer: The workload in London isn’t getting any smaller. Overall, we actually need more underwriters, because there is more to do. As of 1 January, we have also become subject to UK regulatory supervision and now have to fulfil additional criteria.