Lloyd’s could negotiate directly with EU as it seeks post-Brexit certainty

Lloyd’s has not ruled out direct negotiations with the European Union as it looks to secure access to the European Economic Area (EEA) when the UK leaves the European Union, Inga Beale, chief executive of Lloyd’s, told Monte Carlo Today.

“It is possible we could eventually negotiate directly with the EU, but now is the wrong time to try to start that process,” Beale said.

“We have very good connections in the UK government and we believe they grasp the importance of the issue for Lloyd’s and the London Market as a whole. But it is just impossible to predict timescales on this.”

Given this uncertainty, she said Lloyd’s is pursuing three different avenues as it seeks unfettered access post-Brexit. While one of these is lobbying the UK government to prioritise a deal for the insurance industry, she stresses that the market “cannot wait for that” and is also pursuing two other solutions.

A working group to negotiate individual licences with each country in the EEA has been formed. She said that Lloyd’s has all the right expertise and relationships to do that and that countries welcome the relationship with Lloyd’s.

She is aware, however, that if a pan-EEA deal of any description is agreed, this will have been a waste of time. “We debated this point, but we concluded that we had to keep going. We need to explore all options and we cannot risk waiting,” Beale said.

Lloyd’s is also exploring the possibility of forming a subsidiary in a EU-member country, to access the market that way, in the same way a company might. But Lloyd’s is not a company and Beale admits this option is not simple.

“Because Lloyd’s is a unique entity and not a company this is far from straightforward,” she said. “It is further complicated by the fact that each regulatory regime within the EEA is different.

“We are exploring the best way of doing this. You have to remember that countries are keen to deal with Lloyd’s. It is a two-way street. We do business in Europe but they also want to be doing business with us. Lloyd’s has such a strong reputation, people want us operating in their countries.”

Beale also emphasised that although Lloyd’s is taking the implications of Brexit extremely seriously and exploring all options that could help solve any potential problems, the situation is not a big problem for the market.

First, any impact on insurance contracts would occur only after Brexit had actually happened—certainly not yet, and not even when the UK government presses the so-called button on Article 50 to begin the process of leaving.

Second, the change will barely affect reinsurance contracts, while a number of types of specialty business are exempt, including marine and aviation. She said the main business line impacted would be more simple insurance business which, she estimates, accounts for around 4 percent of Lloyd’s total gross written premiums.

Beale admits that although the potential impact is manageable—and Lloyd’s is exploring all avenues to avoid there being any impact—the uncertainty around the situation is unhelpful. “We are talking to brokers, clients and all partners to stress that whatever happens we will have access, it is just the mechanism of that access that is in doubt,” she said.

She added that there are risks associated with Brexit that go beyond its direct impact on insurance. At a time of so much change and uncertainty in the world more generally, it adds to that sense of instability.

“Power is shifting from the west to the rest and we will see more company headquarters based in Asia. At such a time, something like Brexit gives the sense that we are not in it together. That is a challenge.”