A post-Brexit financial environment won’t kill the London market, but it will become diminished after the dust settles, insurance industry veteran John Lloyd said during the recent RIMS 2017 meeting in Philadelphia.
“We as a financial services sector within the UK and EU will be lesser for [Brexit] than the exercise currently is,” said Lloyd, a founding partner of Lloyd Thompson Group and former CEO of JLT Specialty.
Lloyd, speaking during an April 25 session at the annual Risk Management Society meeting, said the Brexit scene in the UK has been confusing and frustrating.
“I amongst a number of our contemporaries had direct dialogue with a number of our politicians in the UK [who have] experienced frustration as to what can be done,” Lloyd said. “I have been in the industry for 44 years. I don’t think I have ever seen a period of such confusion as we have currently.”
He added that the uncertainty Brexit has created hasn’t been helped by “the current insurance market and overcapacity we have.”
That said, Lloyd added he sees Brexit as a survivable exercise.
For example, Lloyd said that if the UK accepts that it must keep pace with amendments to Solvency II (a regulatory framework for the EU and Switzerland that requires minimum capitalization standards for insurers), then “there should be no reason at all why insurers in the London market shouldn’t be acceptable without tariff, without restraint, the same way that Bermuda (which has Solvency II equivalence) and Switzerland [are].”
“In theory, it is possible. If the UK swears religiously and complies with its commitment to Solvency II, there should not be a problem,” Lloyd said.
But for this to pass, as Lloyd noted, there must be agreements in place. Neither the EU nor the UK are there yet, he added.
“At the moment, we have two parties squaring up to each other looking for a very serious fight in these negotiations,” Lloyd said.
The stakes are high in terms of the ongoing political battle, and Lloyd broke it down in stark terms:
“What we are dealing with in the United Kingdom is a very, very serious fight between the arch right (very hard Brexiters, who believe we can leave Europe and operate the following day under World Trade Organization rules and survive as an economy) and those on the more moderate wing, who the hard right call the Remoaners, who believe very strongly we have to come to a landing that protects our industries and continues to allow us to trade effectively, if not within the single market, certainly as an associate member of the single market,” Lloyd said.
Lloyd told the audience that he is a Remoaner and believes a hard Brexit “would do extraordinary damage to the financial services industry.”
Lloyd reminded his audience that Lloyd’s of London and other insurers aren’t waiting for the UK to solve its Brexit crisis and are turning to the continent to establish EU subsidiaries and avoid any Brexit-related issues that could hamper their business. With that, however, will come a shift of staff members and some premium business from London.
In the end, Lloyd said, the UK will probably come up with a situation where it has an associated status within the EU single market and continues “to pay a significant amount” to participate.
“I cannot believe we will not end up with some sort of compromise,” he said, noting that Prime Minister Theresa May is a “tough negotiator” but also a pragmatist who “will try and work this through.”
Editor’s Note: Lloyd was one of the founding partners of what became the Lloyd Thompson Group, and served as chairman there before it merged with Jardine Insurance Brokers in 1997. He was chairman of the combined business’ Lloyd’s broker operation before establishing and becoming chairman and CEO of Lloyd & Partners, JLT’s specialist wholesale broker, in 2005. After it merged with Lloyd & Partners in 2014, he became CEO of JLT Specialty Ltd. and stepped down at the end of 2015 as part of a succession plan. He remains as a director and advisor.