Britain would have to apply for regulatory equivalence — just as Bermuda has already successfully managed — in order for its insurers to access European Union markets on a level playing field with continental competitors, under the EU’s latest draft Brexit proposal.

Many insurers have already conceded that the UK would lose “passporting” rights for financial services that enable Britain’s banks and insurers to serve clients across the EU.

But bodies representing them are pushing for a system of mutual recognition as they want a set of rules that is more durable and not subject to unilateral withdrawal.

The EU will consider offering the UK “improved equivalence” for its financial services, according to the latest draft of the bloc’s negotiating position, obtained by wire news services Bloomberg and Reuters.

Under equivalence, the EU will only let UK financial services firms access its market for as long as it considers British rules to be equivalent to the bloc’s.

Bloomberg reported yesterday that the use of the word “improved” in the draft is intentionally vague, according to an EU official who declined to be named.

“Regarding financial services, the aim should be reviewed and improved equivalence mechanisms, allowing appropriate access to financial services markets, while preserving financial stability, the integrity of the single market and the autonomy of decision making in the European Union,” the draft reads. “Equivalence mechanisms and decisions remain defined and implemented on a unilateral basis by the European Union.”

Britain’s impending departure from the EU was triggered by a referendum in June 2016.

Many Bermudian-based insurance groups have operations in London whose ability to access European markets could be jeopardised by Brexit.

Most have not waited for the outcome of the complex negotiations to ensure they have a European hub to continue to service EU clients, whatever happens. Bermudian-headquartered Hiscox, for example, is setting up a base in Luxembourg and XL Group has opted for Ireland.

Sian Hill, a partner and Brexit insurance lead with KPMG in the UK, said in an interview with The Royal Gazette last November that Bermudian-based groups had an added option, thanks to the island’s third-country equivalency with the EU’s Solvency II insurance regulations.

“It might be possible for some Bermudian groups to write European business directly from Bermuda in the future, because the licences already exist, even if they don’t do that currently,” Ms Hill said.

“It’s hard to say how that’s going to pan out, but Bermuda is a recognised Solvency II-equivalent jurisdiction, which means that the Bermuda Monetary Authority is regarded as a good group supervisor.”

Bermuda won third-country equivalence two years ago, the culmination of a six-year effort led by the BMA, the island’s financial services regulator.

Ms Hill added: “It’s not yet clear whether the UK would be recognised as an equivalent jurisdiction. It’s something that would have to be granted by the EU, as opposed to being automatic.”

Ms Hill added that Brexit would also have repercussions for groups with an EU platform outside Britain looking to write business in the UK.

A Bermudian firm writing EU business out of Ireland, for example, may also have a UK branch, but Ms Hill said an extra step may be needed in future.

“The current expectation is that they would need to get that UK branch separately authorised in the UK,” she said. “So you wouldn’t necessarily need to change your legal structure, but you would need to have a locally regulated branch.”