Following the shock Brexit vote, Lloyd’s of London along with other key London based insurers are looking into opening subsidiaries in Europe due to the fear that full passporting rights may not be granted for the UK when exit negotiations have been closed. Inga Beale, CEO of Lloyd’s commented “We are now focussing our attention on having in place the plans to ensure Lloyd’s continues trading across Europe. We are making very robust plans.”
What is “passporting”?
Passporting allows the UK’s authorised insurers and financial institutions to conduct business across all EU member states. Prior to the referendum Lloyd’s was lobbying intensely for the UK to remain in the EU to ensure that the UK’s passporting rights were maintained in full. A recent report carried out by the FCA shows that approximately 5, 500 UK firms rely on the corporate “passport” system to operate a successful business. Lloyd’s could loose approximately 4% of their revenue if they fail to maintain passporting rights or if as an alternative, they don’t open a European subsidiary.
London is the largest insurance centre in the world and in order to maintain that position it must adapt to the changing environment. There must be contingencies in place to respond to the possibility of the UK loosing passporting rights to deal with Europe following exit. The solution of creating a subsidiary or branch office inside the EU is a relatively simple one but it’s important that Lloyd’s isn’t caught napping.
Where could the new subsidiaries be located?
It is likely that the new subsidiary for Lloyd’s will be located in Dublin, considering that there is a pre-existing and thriving insurance industry and a legal structure which is similar to that of London. Other destinations such as Luxemburg are likely to be considered as they already have some UK-based subsidiaries operating there. Insurance companies who are considering opening a European subsidiary will need be prepared to operate under strict compliance policies.
London is the largest centre for the insurance market and it is vital that its insurance operations remain successful and profit worthy. To do this, the relationship between the UK and Europe must be maintained. Wholesale and Commercial lines of business are based on a strong relationship between both the broker and insurer. If the passporting rights are lost during the process of the UK departing from its current EU status then there are only two options for ensuring that the London insurance market will continue to operate successfully; Lloyd’s will need to open a European subsidiary or there will need to be Lloyd’s branches in the countries which they operate out of.