29 September 2016

Financial Times: London’s insurers rush to cover the Brexit bases

In April this year, after months of careful consideration, planning and number crunching, insurer Beazley shifted its headquarters from Dublin to London. The move would, executives said, make Beazley more efficient — partly because there would be less to-ing and fro-ing between the two cities.

Just two months later the UK voted to leave the EU, throwing into doubt the ability of companies to access the single market from a London base. The result has raised a whole raft of questions not just for Beazley, but for the city’s entire insurance industry.

Passporting — or the use of single market rules to access one member state from an office in another — is “the biggest issue by a million miles”, according to Jonathan Burdett, a Deloitte partner.

For life insurance companies, the problems are not so serious. Their markets are still driven by local products, local preferences and local rules. Those life insurers that operate in overseas markets tend to do so via fully-fledged subsidiaries, so make little use of passporting.

In property and casualty insurance (P&C) the situation is more complex, especially for the wholesale and commercial insurers in what is known as the London market. This specialist corner of the insurance world makes up a big chunk of London’s financial services industry.

Some insurers have ready-made solutions if passporting were to disappear. Beazley, for example, kept a subsidiary in Dublin when it moved its HQ to London. And many of the large continental insurers that passport into London from elsewhere could potentially make greater use of subsidiaries that already exist in the city — Zurich has a UK-based subsidiary for its life insurance operation, for example.

But that is not the case for everyone. Many big global insurers, from AIG to Japan’s Tokio Marine, have based their European operations in London and passport into the EU from there. A raft of London-based insurers have the same problem.

The industry is lobbying hard to keep full passporting rights but insurers are also making contingency plans. For most, this will involve setting up a subsidiary in another EU country to act as a new base.

Dublin is likely to be a popular choice. There is already a thriving insurance industry there, which would make recruitment easier. The language, legal structure and proximity to London also work in its favour. Insurers are also looking at France, Germany and the Netherlands, which have large domestic insurance industries.

Full article on Financial Times (subscription required)

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