David Worsfold
Within hours of Prime Minister Theresa May signing the long awaited letter giving notice of the United Kingdom’s intention to leave the European Union, Lloyd’s of London confirmed it will be setting up a new European hub in Brussels.
This was a bold move by Lloyd’s, although not unexpected. Like most insurance and financial services entities that have business in other EU countries to protect post-Brexit, Lloyd’s had already made the decision that it must prepare for a hard Brexit with no deals on passporting or equivalence. This is the almost universal stance being adopted across the City, although many firms do not want to be drawn into making public statements before they have worked out how they will operate after March 2019.
This is where Lloyd’s leadership will be helpful.
The intention is that its new subsidiary will be ready to write business for the 1 January 2019 renewal season. It will be able to write risks from all 27 European Union states and the three European Economic Area members. It is believed that it will involve the transfer of around 100 staff from London to Brussels.
“It is important that we are able to provide the market and customers with an effective solution that means business can carry on without interruption when the UK leaves the EU,” said Inga Beale, Lloyd’s chief executive.
She was, however, careful to strike a more optimistic note too: "It is now crucial that the UK government and the European Union proceed to negotiate an agreement that allows business to continue to flow under the best possible conditions once the UK formally leaves the EU. I believe it is important not just for the City but also for Europe that we reach a mutually beneficial agreement. We stand ready to help and support the government as best we can.”
This is very much in line with the careful balancing act the City is having to strike over Brexit. It is constantly being told by the Brexit and International Trade departments that they don’t want to hear bad news about the consequences of leaving the EU. There is a deepening sense of gloom among those who have been dealing with government that these departments do not understand the complexities of passporting and equivalence. With the Treasury – which does understand the important nuances – increasingly sidelined as the government’s negotiating strategy is developed, they believe there is a minimal prospect of a robust trade deal covering all financial services being done in time for the end of the Article 50 process.
The choice of domicile for its EU subsidiary will also provide a lead to the market. It is understood that Brussels was selected from a shortlist which included Dublin, Paris, Frankfurt and Luxembourg.
“Brussels met the critical elements of providing a robust regulatory framework in a central European location, and will enable Lloyd’s to continue to provide specialist underwriting expertise to our customers”, said Beale.
There are still several hurdles to be negotiated before the hub is up and running, said Lloyd’s chief financial officer John Parry speaking at last week’s announcement of the market’s annual results: “The number of staff is a consideration that has to be worked through with the regulator as to what is the presence required. There will be staff in Brussels, we will need a properly constituted governance structure and the rest. We’re talking tens not hundreds in terms of staff levels."
The regulatory process of setting up the Brussels hub is expected to take 12 to 18 months, Parry said.
“One of the reasons for selecting Belgium is the bandwidth and the skills of the regulator. They seem to have been quite well informed about Lloyd’s. Time is not our friend here. We want to be up and running for 2019.
There have been very few announcements from other London market insurers and brokers so far. AIG has said it will set up a new operation in Luxembourg and Beazley has identified Dublin as its preferred base. By attracting Lloyd’s, Brussels has put itself in prime position to accommodate other London market players looking for a new EU base post-Brexit.
This hasn’t gone down well everywhere.
Across the Irish Sea, Insurance Ireland, the company market trade body, said lessons need to be learned from Lloyd’s decision to pass up on Dublin as its European subsidiary. It has called for a government review into the country’s viability as a base for UK insurers post-Brexit.
Kevin Thompson, chief executive of Insurance Ireland said: “There are many competing jurisdictions for insurance investments arising from the UK’s decision to leave the European Union.
“To capitalise on Ireland’s advantages, and to maintain the strong growth trajectory of the sector here, Insurance Ireland is calling for a review process to inform government and industry efforts to secure future opportunities.
“Insurance Ireland has also sought a meeting with the government to discuss this review process and further collaboration to convert expressions of interest into investment decisions.”
It is likely that the other options on Lloyd’s shortlist will also be re-examining their pitch as the battle to attract business from London intensifies.