Lloyd's market 'stock exchange for insurers'

Brexit is not the end of the world; it's just a major change, Lloyd's general representative in Australia Chris Mackinnon told the AILA Qld insurance law intensive.

He said the ramifications for Lloyd's were "unrecognisable" compared with those for general insurers because Lloyd's was a market not an insurer. "It's [like] a stock exchange for insurance," he said.

Lloyd's was a broad network of specialist businesses that wrote £30 billion of premium in 2016 through 57 managing agents and 97 syndicates. Mr Mackinnon said Lloyd's was perceived as being UK-centric, but it was not. "Over the last 20 years, Lloyd's has recognised that we must come into the territories to allow people access to our market." It was no longer men in pinstriped suits in London waiting for business to come to them.

Lloyd's was licensed in more than 200 territories. In 2015, 50% of business was generated in Canada and the US; 15% in the UK; 14% in Europe;  and 10% in the Asia-Pacific region.

Mr Mackinnon said the Brexit vote would be "a messy divorce after 43 years of marriage". Once the UK left, all its rights to operate in the European Union were terminated. Access to the single market that enabled free movement of goods, services, people and capital would go, but Mr Mackinnon predicted the UK would "return to its childhood sweetheart, the Commonwealth".

For UK-based insurers, negotiating with 27 different regulators was not practical, so the answer was to set up in an EU location to obtain passporting rights.

A survey conducted by Intelligent Insurer e-magazine after the Brexit vote found 32% of respondents preferred Ireland; 13% Germany; 12% Belgium; and 10% Luxembourg.

Mr Mackinnon said respondents considered issues like language, the regulatory framework, access to talent, and the tax regime. "Ireland has the language benefit – they almost speak English there," he said.

Belgium was the seat of the European parliament and easy to access.

Lloyd's already had a strategy in place in case the vote favoured leaving the EU, but the situation was more complex than for an insurer. "Lloyd's is not an insurer; we can't set up a subsidiary of a marketplace. But we have 500,000 customers in Europe and need to give them seamless access."

Lloyd's solution is Lloyd's European Subsidiary (LES), an insurance company that will underwrite from Brussels from 1 January 2019 and reinsure 100% back into Lloyd's of London.

He said the concept was similar to Lloyd's operation in China. Ten to 20 people would run LES in Brussels and it would write all business transacted in Europe. LES added "another entity into the chain" and did create "tax complexities".

"LES is a long-term strategy because we want to leverage growth in Europe."

Mr Mackinnon said post-Brexit it would be a challenge for London to retain its status as head of the global insurance industry. "Is the traditional centre of the world's insurance market going to be diluted?"

He named New York, Amsterdam and Singapore as potential threats to London's status.