Brexit starts to change the London Market

While the consequences of Brexit are likely to impact the UK re/insurance industry in the UK for some time, the main effect may become visible in the business culture, according to executives interviewed by Intelligent Insurer for our year-end questionnaire.

The date March 29, 2017, when the UK officially triggered Brexit, was clearly an important day for our London clients, said Peter Allen, partner, Moore Stephens.

“Although our view is that Brexit is by no means an insuperable challenge for the London re/insurance market – indeed, operationally rather less complex than recent EU regulatory initiatives such as Solvency II and GDPR – the cultural impact of Brexit will reverberate for many years,” Allen said.

Since Brexit was triggered, many insurers have created new entities in other EU countries to transfer assets and employees to be able to continue to serve EU clients.

Lloyd’s, for example, is establishing a subsidiary in Brussels, which will provide access to Lloyd’s for brokers and customers after the UK leaves the EU.

Overall, £7 billion of London Market business is directly impacted by Brexit.

“I expect the tone of the London market to become more ‘offshore’ as the regulatory, fiscal and entrepreneurial supertankers start their slow divergence,” Allen said.

2017 saw the continuation of a long-running trend which is the sale into foreign ownership of the bulk of London underwriting capacity, Allen suggested.

In March, for example, German insurer Hannover Re reached an agreement to acquire the entire share capital of the UK holding company Argenta, which owns Lloyd’s managing agent Argenta Syndicate Management and Argenta Private Capital as well as pro rata share of the Lloyd's Syndicate 2121.

According to one of Moore Stephens’ competitor over 80 percent of London re/insurance capacity is now owned and ultimately controlled outside the UK. Although that makes limited difference in the short run, in case of a market-changing event, decisions crucial to the future of the industry will be made outside London by those with perhaps limited emotional investment in the place, Allen suggested. He compared the potential consequences to the “Big Bang” in the banking market of the 1980s.

“In that case it resulted from many fewer major players but ultimately a vigorous increase in the global competitiveness of the industry,” Allen said.

This is just a snapshot of what executives told us in our Christmas questionnaire. For the full comments from all 16 executives that took part in our survey, please click here.