Firms are shifting their centers out of London and into rival EU locations as the UK readies to leave.
As much as $71 billion from the UK insurance industry is stepping out of London and is headed into locations throughout the European Union.
The shift away from the capital city and into the EU is occurring as a direct result of Brexit.
The EU’s insurance and pensions regulator has issued an order to every underwriter across the UK insurance industry. Those firms are required to transfer policies held by clients in Europe to units located within what will still be the EU after Brexit. The majority of those total liabilities have already moved to Ireland, Belgium or Luxembourg. The liabilities are an industry gauge of scale of the potential payout of all the policies.
If Brexit does occur on October 31, around £5 billion ($6.03 billion) will remain in the UK, according to the Financial Stability Report published by the Bank of England in July.
The largest insurance market in the world, Lloyd’s of London, has stood out from among the rest of the industry as a slower mover. It had already written around £3 billion in policies over the quarter century before it finally opened a subsidiary in Brussels at the start of this year. Should a no-deal Brexit occur, Lloyd’s won’t have the legal capacity to guarantee payment on claims made through those European policies.
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According to Lloyd’s, it will transfer all those policies out of the UK insurance industry next year.
Lloyd’s said its European policies will all have been transferred to Brussels by October 31, 2020. A spokesperson cited in a Bloomberg report said that EU member states have taken the steps required to make certain that 90 percent of policies can be paid regardless of the nature of the Brexit that occurs.
Moreover, Lloyd’s has instructed its syndicates – that is, the insurance companies that conduct the trading floor-level policy underwriting – to honor all EU client claims following the UK’s withdrawal from the bloc.
London is the center of the UK insurance industry, but also comprises up to one tenth of the global insurance and reinsurance market. There will be both a “practical and symbolic” impact from Brexit, said Bloomberg. The report pointed out that Brexit has been hacking away at London’s importance in the industry. Moreover, the form the withdrawal takes may only cause the role to continue to shrink and decline.