Brexit could harm Lloyd’s future growth, chief risk officer says

The UK’s membership of the European Union is key to Lloyd’s future growth and its competitive position among the global insurance market, Lloyd’s chief risk officer Sean McGovern has said.

The UK government has promised to hold a referendum on the country’s membership of the EU by the end of 2017. It is still unclear when the British public will be able to vote, although 23 June 2016 has been earmarked as a potential date.

Recent opinion polls show the British public is fairly evenly split so the risk of the UK leaving the EU, a so-called Brexit, is considerable.

Much will depend on the UK’s ability to secure changes to its current membership of the EU and negotiations between the EU and the UK government are ongoing.

But Lloyd’s is already assessing the potential damage that a possible Brexit could bring to the London insurance market.

The EU is the world’s largest insurance market with total insurance premiums of nearly €1.4trn. Britain’s membership of the EU offers the London insurance market access to the EU single market and Lloyd’s conservatively estimates that the London market writes £6bn of premium income from the EU. But this could be at risk if Britain leaves the EU.

Speaking to the Insurance Institute of London McGovern, said: “The UK’s membership of the EU has been part of [the London market’s] success story and we believe that it will be key to our future growth and development as we deal with competition from other insurance centres around the world.”

While McGovern stressed that the best scenario would be for the UK to remain in the EU, he said Lloyd’s has been working on contingency plans to deal with a range of possible scenarios.

“In the event of a vote to leave, we would work with the UK government and EU institutions during any negotiations to retain market access for Lloyd’s and the London market and create as much regulatory certainty as possible.”

He added that Lloyd’s has examined all alternatives to the UK’s existing relationship with the EU if Britain votes to leave. “There is real uncertainty about what those alternatives might be and what will be politically and practically achievable after a vote to leave. What we do know with certainty, however, is that none of the alternatives will be as beneficial for the London market as the current relationship.”

Through Lloyd’s contingency plans, two things have become clear, McGovern said. First, Brexit does not offer a route to “insurance regulatory nirvana”, as the UK regulatory system has been largely driven by domestic political and regulatory concerns and cannot be blamed on Brussels.

“ Second, an equivalence finding under Solvency II does not provide a solution. The UK would, under EU parlance, be a ‘third country’ and whilst it may be found to have a regulatory regime that is equivalent to Solvency II – that does not confer a right to access the EU market either on a cross border or on a branch basis.”