Artemis Financial

Lloyd’s has filed an application with the Belgian regulator to form an insurance company that will allow it to continue to write European Economic Area business after Brexit takes effect.

The application was filed with the Belgian central bank in mid-October following lengthy pre-application discussions.

With the gestation of Brussels-based Lloyd’s Insurance Company SA broadly progressing as planned, the market should be on track to write business via the entity for the January 2019 renewals.

Assuming it gains the go-ahead, the entity expects to write risks from a region which accounted for about 11 percent of Lloyd’s 2016 premiums through the market’s current distribution channels of brokers, coverholders and managing agents.

The Corporation has also indicated to stakeholders that it was confident a clampdown on reinsurance cessions by the EU insurance regulator would not derail plans for the new subsidiary.

Recent suggestions by the European Insurance and Occupational Pensions Authority that it wanted Brexit satellites to keep 10 percent of the risk written by their new EU subsidiaries had briefly appeared to jeopardise Lloyd’s planned Brussels set-up.

Lloyd’s had selected Belgium as the location for the new unit in part because of the understanding that the new company could cede 100 percent of the risk to London.

The 100 percent cession goal reflects Lloyd’s aim to establish a capital-light entity in Brussels that would be regulated under the Solvency II standard formula.

Once it has gained Belgian approval, Lloyd’s European subsidiary will apply to the Prudential Regulation Authority (PRA) to establish a third-country branch in the UK.

This would allow staff in the UK to carry out regulated activities on Lloyd’s Insurance Company’s behalf when Britain leaves the EU.

The UK branch plan negates the need for intermediation to take place in Europe and for intermediaries to require authorisations from the local conduct regulator.

The PRA has traditionally preferred the subsidiary model over branches, but is thought unlikely to object to Lloyd’s Insurance Company’s UK branch since it is the main regulator of the Corporation itself.

Lloyd’s is also understood to have resolved questions over financing of the entity.

It has opted against the pay-to-play model favoured by some carriers that have other European operations they can utilise. This would have mirrored the structure used for Lloyd’s China.

Instead, the costs will be funded centrally, with all managing agents effectively paying in regardless of whether they decide to use the platform.

Lloyd’s CEO Inga Beale has previously said that the Corporation is likely to have 10 to 20 Brussels-based staff initially, with around 60 overall in continental Europe.

The staffing plans of Lloyd’s have yet to be disclosed, but it has previously said the Brussels workforce would be “in the tens”.

Other elements yet to be decided include Lloyd’s Insurance Company’s IT infrastructure, with a tender still to be launched.

One adviser noted that larger companies with both Lloyd’s and company market operations generally expected to use the Lloyd’s platform as well their own planned EU hubs to write risk.