Lloyd’s Plans for Post-Brexit Subsidiary

Just one day after the U.K. set in motion its process for withdrawal from the European Union by triggering Article 50, Lloyd’s announced it was establishing a subsidiary in Brussels, intending to be able to write EU business for the Jan. 1, 2019, renewal season.

The new company will write risks from all 27 European Union countries and three European Economic Area states once Brexit is completed. Because Britain remains a full member of the EU for at least two more years, there will be no immediate impact on existing policies, renewals or new policies, including multi-year policies written during this period of time, the insurer said. The Brussels subsidiary will have its own board of directors and, unlike some banks that have said they will move hundreds of employees to the EU, it will only employ dozens of staff in areas such as information technology and compliance.

Hank Watkins, president of Lloyd’s North America spoke to Risk Management about the company’s plans and the why it chose Belgium as its new location.

RM: How did the process of finding a new EU base begin?

Watkins: Within a week or two of [the Brexit vote] last June, Lloyd’s was on its way, looking across Europe for a new domicile, if you will, for our European business. We are not moving out of London—what we have done is set up an insurance company in Brussels, purely to allow us to passport around the European Union. Because we are not necessarily confident that the U.K. will be able to negotiate passporting rights with the other countries, we are assuming they are not. If they are ultimately successful, then we will just close up and go back home, but that probably will not be the case.

RM: How will the subsidiary work?

Watkins: If you are a policyholder with Lloyd’s, where you previously would have received a policy with all of the syndicates subscribed to it, and that would have been stamped by each of those syndicates, you will also receive an identical policy for the European exposures. It will have the Lloyd’s insurance company name on it and the syndicate stamp of that insurance company and the Lloyd’s syndicates. It is just a little more paperwork for us. The policy is the same—it does not change coverage and it does not change pricing—It is more of an administrative effort to align with what the regulator expects. And our ratings are not affected, we are still S&P-, AM Best- and Fitch-rated A or better and the central fund is still very strong.

RM: Why Belgium?

Watkins: We found a regulator there who is allowing us basically to cede 100% of the premium and the risk back to the syndicate in London. Every other country has some variation of wanting to maintain part of the risk in their country but that does not work for us. So Belgium is a very strong regulator centered in the heart of Europe and a great talent pool as we build out the platform—which won’t be that large, by the way, because we are not necessarily moving people there.

RM: How will insureds be impacted?

Watkins: Companies with no risks in the European Union will see no impact, and it will be seamless for international companies with risks in the EU. Also, it is probably not as well known, but because we are not just large, commercial risks, we do insure a lot of homeowners on the coastlines and a number of private yachts and aircraft, so this is a way to seamlessly include coverage for them in Europe as well.

More Insurers Opting to Form EU Subsidiaries

A growing list of insurers are choosing to form subsidiaries in the European Union to ensure continuous coverage for their European clients following the United Kingdom’s withdrawal from the EU in June 2016. They wish to protect themselves in case Brexit impacts their ability to sell insurance policies and products across the EU from bases in Britain.

FM Global recently announced it is opening an office in Luxembourg, noting that the license allows it to “continue to deliver seamless insurance coverage to its policyholders” throughout the European Economic Area (EEA), where it has operated for more than 50 years.

“We chose Luxembourg as our EEA hub because it’s a multinational business-friendly financial center with regulatory expertise that enables us to remain true to our mutual insurance company business model,” Chris Johnson, executive vice president who will serve as its managing director said in a statement. “Most notably, Luxembourg is a hub that permits EU passporting—which fits our business model perfectly.”

Lloyd’s said in March it will establish an EU base in Brussels that will allow its markets to continue to write risks from all 27 EU and three European Economic Area states post-Brexit. “It is important that we are able to provide the market and customers with an effective solution that means business can carry on without interruption when the U.K. leaves the EU,” Lloyd’s Chief Executive Inga Beale said in a statement. She added that Brussels met the critical elements of providing a robust regulatory framework in a central location.

Lloyd’s said its intention is to be ready to write business for the Jan. 1, 2019, renewal season.

U.S. insurer AIG also announced recently that it is moving its headquarters from London to Luxembourg; and Lloyd’s insurer Hiscox said in May that it has decided to establish a subsidiary in Luxembourg, after debating between Luxembourg and Malta.

Luxembourg has said that as well as insurers, it is in talks with firms including asset managers, banks and financial tech companies.

Lloyd’s to Establish EU Base in Brussels

One day after the U.K. set in motion its process for withdrawal from the European Union by triggering Article 50, Lloyd’s announced that it has chosen Brussels as the location for its European Union subsidiary.

A market of syndicates in London, Lloyd’s said its intention is to be ready to write business for the Jan. 1, 2019, renewal season. The move will enable the company to write risks from all 27 European Union countries and three European Economic Area states once the U.K. has left the EU. Because Britain remains a full member of the EU for at least two more years, there is no immediate impact on existing policies, renewals or new policies, including multi-year policies written during this period of time, according to the insurer.

In 2015, the EEA accounted for £2.93 billion ($3.66 billion) or 11% of its gross written premium, the organization said.

“It is important that we are able to provide the market and customers with an effective solution that means business can carry on without interruption when the U.K. leaves the EU,” Lloyd’s Chief Executive Inga Beale said in a statement. She added that Brussels met the critical elements of providing a robust regulatory framework in a central location.

“We are a market, we are unique, we are not like an insurance company – we needed to find a regulator with the resources and the bandwidth to regulate the Lloyd’s market,” Chairman John Nelson told Reuters.

Nelson said the Brussels subsidiary would employ dozens of staff in areas such as compliance and information technology, unlike banks that have said they may move hundreds of staff to the EU. The regulated company will also have its own board.

U.S. insurer AIG recently announced it was moving its headquarters from London to Luxembourg, and Lloyd’s insurer Hiscox is in the process of choosing between Luxembourg and Malta.

While the United Kingdom’s relationship with the European Union may have sometimes been a fractious one, the decision by 52% of its voters to leave the world’s biggest single market was an outcome that many experts and businesses did not expect, Neil Hodge wrote in the August 2016 Risk Management Magazine.

A month before the June 23 referendum, the 100 Group, which represents finance directors from the U.K.’s biggest companies, conducted a survey that found that not one of its members supported a British exit—or “Brexit”—from the EU. This view was echoed by Carolyn Fairbairn, director-general of the U.K.’s leading pro-business lobby group, the Confederation of British Industry (CBI). “The decision to leave the EU is not one that business would have chosen to take,” she said. “We know that the majority of our members wanted to stay in.”

Foo Fighters Sue Lloyd’s Over Terrorism Coverage

Foo Fighters
The Foo Fighters said they are suing Lloyd’s of London for failing to reimburse them for scheduled concerts that were called off after the November terrorist attacks in Paris.
Loss adjuster Robertson Taylor is also part of the suit, which was filed on June 13 in federal court in Los Angeles.

The group canceled scheduled shows in Turin, Italy; Paris and Lyon, France; and Barcelona, after the Islamic State attacks because of threats, according to the Associated Press. Immediately following the Paris attacks, the Foo Fighters said, their website was hacked and the ISIS flag was displayed with an automatic weapon and a threat to “be prepared.”

The AP reported:

The band says in the suit that it believes it will be paid for the Paris and Lyon cancellations but alleges that Robertson Taylor advised underwriters against paying for canceled shows in Italy and Spain despite ISIS releasing a video threatening additional attacks in Europe.

The band is also suing the insurers for not paying for three canceled shows related to group leader Dave Grohl’s injured leg after a fall from a stage in Sweden last June.

Performers cancel shows for a number of reasons, but whether they are covered depends on details in their cancellation insurance policy. Terrorism is listed as a cause of loss by K&K Insurance. Other triggers include:

  • Power failure
  • Damages to leased or rented venues
  • Damage to surrounding venues or infrastructure resulting in lack of access
  • Natural catastrophe such as earthquake and flood
  • Adverse weather conditions (coverage is broader than rain insurance and there are no rain gauge requirements)
  • Non appearance of a principal speaker or entertainer
  • Inability to erect facilities at a venue
  • Disease outbreak (certain exclusions may apply)
  • Labor dispute/strike risks
  • Failure of TV broadcast
  • Any other previously unforeseen cause not excluded under the wording.

For more information about recent cases involving event cancellation, check out our recent article in Risk Management Magazine.