Insurance Post

Europe: A Rock and a hard place

Rock of Gibraltar

The row between Spain and Britain over Gibraltar may have put insurance firms in the country in an unenviable position. Mark Sands explains.

Tensions in Gibraltar remain high more than five weeks after the eruption of a row that has placed the British and Spanish governments at loggerheads.

Reports first emerged in late July of increased border security slowing traffic as it crossed into the British Overseas Territory. The delays have been interpreted as a reprisal against Gibraltar for the construction of an artificial reef, which saw the Rock drop more than 70 concrete blocks on to the sea floor.

In Spain, it is claimed the reef obstructs Spanish fishermen, although Gibraltar believes the trawlers should not even be in the waters. Since July, the row has intensified with the Spanish government proposing a €50 fee for crossing the Gibraltarian border, with proceeds used to compensate fisherman for their loss of business.

While Gibraltar is not included in the European Union's Schengen Borders Agreement, meaning border checks are allowed, the EU has warned Madrid that it must facilitate smooth and efficient crossings.

Insurance impact

According to the Gibraltar Financial Services Commission, more than 50 insurers are currently licensed to conduct business from the rock but will they be impacted by the row?

Gary Humphreys, chief underwriting officer at Markerstudy, says that the impact of the crisis has so far been limited to awkwardness. "There has been no direct impact on our business but it has caused inconvenience to staff who travel across the border daily," he says. "Vehicular access is a particular problem so employees are parking in Spain and walking in - although parking areas are now becoming scarce. We feel for our loyal employees and hope the situation is resolved quickly."

Humphreys adds that Markerstudy, like many insurers in the 2.6sq mile territory, has accommodation for staff on the rock should the need to stay on the British side of the border.

"Employees are parking in Spain and walking in - although parking areas are now becoming scarce. We feel for our loyal employees and hope the situation is resolved quickly." Humphreys

Albert Isola, Gibraltar's minister for financial services and gaming, says that disputes between Spain and Britain have become a fact of life for firm's choosing to settle on the closest point between Europe and Africa."There is tension, and it has increased, but people that have been here a long time will understand that these things happen from time to time.

"It's almost cyclical and every few years we have a sudden spate of increased activity at the border and that causes us an interruption to the quality of our lives," Isola says, though he concedes the latest disruption has sustained tension at level unusual even for Gibraltar.

A part of life

Stephen Netherway, head of insurance and reinsurance at law firm CMS Cameron McKenna believes occasional political tension is part of the price of Gibraltarian residency. "It has happened before and it will happen again," he says.

Netherway argues that, as a result, the current crisis is unlikely to factor into the thinking of firm's when it comes to deciding whether to base themselves on the Rock. Far more pertinent, he says, will be the collapses of three Gibraltarian insurers over the last year.

"It has happened before and it will happen again." Netherway

Hill and Lemma slid into administration in October last year, and was followed by De Vert in February of 2013.

"Three insurers tipping over in the matter of a similar number of months is not good in anyone's book," Netherway says. "Broker confidence is everything here. Clients tell us that the regulator recognises that and action has been, and is being, taken. We are hearing of tougher regulatory stances being taken, particularly with regard to solvency issues, of more due diligence and checks before operations start, greater focus on premium income levels, and of improving management," he adds.

"What the market needs to hear and see is that the regulator is taking a leaf out of its own playbook: obtaining a clear understanding of what went wrong, explaining that, and explaining the steps have been actioned to stop it happening again.

Defending the Rock

Isola, however, is defensive of Gibraltar's track record in regulation. "If you look at any jurisdiction working in the insurance sector whether it's the UK, Ireland or Malta they all have failures and up until last year, we've done extremely well in not having any failures of note," he says.

"The government's view obviously is that this is something entirely within the hands of the regulator who is carrying out a series of investigations and will be taking action in respect of its findings.

Isola adds: "It wouldn't be appropriate for government to interfere in that process, but we certainly want to ensure that people who have done anything they shouldn't,are brought to justice as quickly as possible."

"If you look at any jurisdiction working in the insurance sector whether it's the UK, Ireland or Malta they all have failures." Isola

Humphreys is similarly upbeat on Gibraltar's regulation."It's a strong regime with a very competent regulator working to common EU standards," he says.
Sources in the country indicate that criminal charges remain likely over the three collapses, both in Gibraltar and beyond, with Lemma and Hill also operating in the UK and Italy, respectively.

"In respect of both you will find that the blame difficult to lay at the door of Gibraltar, even if they were Gibraltar entities. There's no question that there has been activity of a criminal nature which requires reporting and processing," commentators told Insurance Insight.

The end in sight

Meanwhile, Isola says that signals from both London and Madrid suggest Gibraltar's latest political crisis may be approaching its end, with rhetoric becoming less aggressive in the past week. "There seems to be a willingness from all sides to enter into ad-hoc talks, technical talks on issues that concern the different parties and I believe that will now take place," Isola says.

The Gibraltarian government concedes that the dispute has been damaging for the Rock's brand, nonetheless, and Isola says it will increase efforts to promote the jurisdiction as a result."In effect, we've got the world's attention, not for reason that we'd like, but we have it, so it's an ideal time to cement our relationships with different countries, particularly the UK, in terms of what we believe we can still offer companies looking for a jurisdiction which will serve their needs and requirements," he says.

"So long as Gibraltar remains attractive to investors with a user friendly, political, regulatory and tax environment, and with the benefit of passport privileges, I just would not expect any serious outflow of monies because of the political situation." Netherway

Netherway, however, is bullish on the prospects of a territory famous for Barbary Macaques and VAT-free shopping. "So long as Gibraltar remains attractive to investors with a user friendly, political, regulatory and tax environment, and with the benefit of passport privileges, I just would not expect any serious outflow of monies because of the political situation," he says.

He concludes: "It is vital really that there aren't any more collapses- but I don't think the Gibraltar insurance market is going to be holed on a man-made reef."

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