Lloyd’s, the insurance market, is likely to be an early loser from the UK’s vote to leave the EU, as the insurers that use its London hub prepare to shift some of their operations out of the country.
London is a global centre for specialist commercial insurance such as marine and aviation, and much of the business passes through Lloyd’s, which is a market rather than a company. According to a 2014 report, the London commercial insurance market was the source of 10 per cent of UK financial services GDP in 2013.
Global insurers say that one of the big attractions of operating via Lloyd’s is that it offers direct access to EU markets. But EU officials said over the weekend that the UK was likely to lose that right, known as passporting. So a number of global insurers are now planning to either set up new subsidiaries elsewhere in the EU or repurpose those they already own.
Stephen Netherway, an insurance partner with law firm CMS, described the vote as “seismic” for London’s insurance market. “The playbook for distribution and route to European market has just been ripped up,” he said.
Among the international groups with large London operations are insurers AIG and QBE and brokers Aon and Willis Towers Watson.
Ivor Edward, European head of corporate insurance at law firm Clyde & Co, said: “There will be uncertainty as people think about moving away from London. There are a number of insurers that we’ve spoken to that have contingency plans in place.”
Lloyd’s, which generates 11 per cent of its premiums from the EU, had campaigned vociferously for a remain vote, with its chairman, chief executive and chief risk officer all speaking out on the issue.
“Obviously we’re surprised and disappointed by the result, but as far as Lloyd’s is concerned, we don’t think it is a life-threatening issue,” said chairman John Nelson, adding that there were other reasons why insurers would continue to do business in the market. “By and large, we are writing specialist risks. Insurers want access to the best talent, the financial covenant and the brand and reputation.”
He also pointed out that the market had operations outside the UK. “Over the past seven years, Lloyd’s has become a lot more local. We have hubs in Singapore, China, Dubai, and now offices in Colombia, Mexico and Brazil. Lloyd’s is Lloyd’s, not just Lloyd’s of London.”
Speaking ahead of the vote, an executive at one insurer said that a Leave vote would be a “major problem” for Lloyd’s because of its close ties to London, but added that his own company would be able to cope with the change by moving some of its London workforce to the continent.
A survey conducted by PR firm Haggie partners ahead of the referendum found that over two-thirds of people who work in the market thought that Brexit would either hurt or severely damage Lloyd’s.
However, Miguel Ortiz, a senior partner at Boston Consulting Group, said Lloyd’s could compensate for the loss of business in London. “It has a strong global position and there is the opportunity for renegotiations to take place. And it is primarily an Anglo Saxon market, which is also growing in Asia,” he said.
Source: Financial Times