Seems like only yesterday I left my mind behind…

The fact that just over 2 years have now passed since the shock outcome of the UK’s Brexit Referendum emerged, brought to mind the above-quoted line from the Bob Dylan song (performed iconically by Joan Baez) “Love is just a four letter word”. After all, the island of Great Britain and “the Continent” have had an unsettled relationship for much of recorded history, with the current imbroglio being yet another iteration of “will they, won’t they?”

So, it is worth taking stock and asking: “Where are we now?”

Frankly, seemingly not much further on in terms of progress towards resolving the numerous key (let alone mundane) issues that will make the difference between a rational “divorce” with continuing amity, and the semi-scorched earth policy of a “hard Brexit”, especially in light of the recent tumult in the ministerial ranks of the Conservative Government and repeated sparring in Parliament, in which the government has to wonder whether and by whom it will be ambushed next in votes related to Brexit, compounded by mixed signals during President Trump’s recent visit over the attitude of the US Administration. And don’t even mention the mental gymnastics required to solve the “Northern Island Border Question”!

Such uncertainty matters, and is increasingly weighing upon the perceptions, decisions and actions of major sectors of the UK economy, as well as causing concern amongst the UK’s interlocutors in the EC/EU.

The recent UK government White Paper was an attempt to provide a framework for negotiating an “exit” and a transition period before the invocation of Article 50 causes the UK to crash out of the EU at 11pm on March 29, 2019. As we have written before, negotiations of such complexity and consequence usually take years, not months; and the timeline is, in reality, even more truncated because of the need to obtain the necessary approvals from both sides of the negotiations before the witching hour.

Every day that passes without clear progress increases the risk of an un-negotiated “hard” Brexit, with financial regulators in the UK chastising their charges for inadequate contingency planning and preparation for such an eventuality. It is perhaps not surprising that one gets the sense of a significant level of denial in many quarters that the worst could happen, leading to decision-avoidance and paralysis.

In the (re)insurance realm, firms that need to be able to conduct business across the EU and the UK have, of course, taken steps, through the establishment of subsidiaries where necessary in jurisdictions outside the UK, to ensure continuity of business; but the question of business transacted between the post-Brexit UK and the EU remains unresolved, with the only clarity being that the Government is not currently seeking to remain in the “single market” for services and so, once the UK exits the EU, “passporting” will end. Not surprisingly, few in the industry are happy with this because of the level of uncertainty it creates (including on matters such as contract continuity) and even those who profess to be supportive are probably whistling past the graveyard.

Of course, all the current Sturm und Drang may be the prelude, finally, to rational negotiation this autumn, as both parties realize that a “hard” Brexit is in neither side’s interests.

At Awbury, we continue to review the spectrum of possible outcomes, including the worst cases, because that has to be at the core of any effective risk management. One can hope for and expect the best; but should always be prepared for the worst.

The Awbury Team

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