Lloyd’s of London has become one of the first major City businesses to put a timetable on plans to move a part of its operations to the EU in preparation for Brexit.
The 328-year-old insurance market is choosing a destination from a shortlist of five and is likely to put a proposal to its members by February next year.
The market will then seek regulatory clearance for the subsidiary, which will be used to conduct business around the EU using the “passporting” system. This allows financial services businesses to conduct trade across the bloc from a single location.
John Nelson, Lloyd’s chairman, said the market had decided it needed to act sooner rather than later to protect the 11 per cent of its revenues coming from Europe.
“Insurance is a mobile business,” he said. “In common with other financial institutions, we need to put our plans in place — at least on a precautionary basis.”
In common with other financial institutions, we need to put our plans in place — at least on a precautionary basis
Many specialist insurance and reinsurance companies use London as a base to access the rest of the EU, and say that if passporting disappears they will have to find new bases.
Dublin is expected to be popular, given its language, legal system and proximity to London. Beazley has said it will use Dublin as a base for EU operations and the Irish Central Bank has increased staff numbers in its insurance division by 25 per cent to cope with an expected influx of companies.
Lloyd’s preferred option remains to keep its European operations concentrated in London. The market might shelve its relocation plans if a “no change” deal is struck between the EU and London, allowing British financial businesses to trade freely through the single market. Mr Nelson has been one of the City’s most vocal campaigners for passporting rights to be part of any Brexit deal with the EU.
The market had also been considering setting up a network of branches across the continent, rather than a single subsidiary. That option has been shelved.
Lawyers say that Lloyd’s structure — it is a market composed of underwriting syndicates — poses challenges when it comes to setting up base elsewhere.
George Swan, an insurance partner at law firm Freshfields, says: ““Lloyd’s is a hybrid — it is a market, but for regulatory purposes it is treated as an insurer as well. The question would be whether regulators in other countries would need to put in place specific measures to regulate it.”
Many of the insurers that operate at Lloyd’s also have large non-Lloyd’s operations, and could transfer EU business to those operations if Lloyd’s cannot find a workable post-Brexit structure.
MPs and regulators are stepping up pressure on the government to buy the insurance industry more time by seeking transitional arrangements to avert a “cliff edge” effect after Brexit.
A House of Lords committee report called on ministers to make such arrangements a priority when Article 50 is triggered next year to prevent financial services firms from restructuring or relocating on the basis of a “worst-case” scenario.
The committee’s call has also been echoed by the UK’s top supervisor of banks and insurers, who told parliamentarians that transitional arrangements to smooth Britain’s exit from the European Union should ideally be agreed within nine months of the official Brexit mechanism being triggered.
Sam Woods, head of the Bank of England’s Prudential Regulation Authority, told the Treasury select committee: “The important thing is to have some kind of clarity on the transitional [deal], and the sooner the better.”
Mr Woods said such a deal “would reduce the risks but this seems just as true for the EU as it would be for the UK”.
Mr Woods’ position is in line with his boss, Mark Carney, governor of the Bank of England. The chancellor, Philip Hammond, has also called for transitional arrangements, which some Brexiters view with scepticism because they are pushing for a “clean break” with the EU.
David Davis, Brexit secretary, also conceded on Wednesday that transitional arrangements may be needed.
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