March 2017
Lloyd’s has made a surprise decision to locate its new EU subsidiary in Belgium’s capital city Brussels, The Insurance Insider can reveal.
The Lloyd’s Franchise Board today decided that it will recommend the Council ratifies a decision tomorrow to establish a capitalised subsidiary in Brussels, which is also home to several prominent EU institutions.
An announcement of the decision will be made alongside the Lloyd’s annual results on Thursday, a day after UK prime minister Theresa May is due to trigger Article 50.
Lloyd’s declined to comment.
The decision confounds market expectations after Lloyd’s had appeared to pivot towards Luxembourg, following initial expectations it would establish an entity in Ireland.
But sources told this publication that following a months-long selection process, the Corporation’s day-to-day executive body had judged that Belgium was a better jurisdiction for the post-Brexit entity than either Luxembourg or The Netherlands, which was also involved in the latter stages of the deliberations.
The choice of a hub at the centre of the EU could be seen as a statement of intent in terms of continental European expansion, with Luxembourg perceived as the jurisdiction that would have offered Lloyd’s the least expensive means of replicating the status quo.
A formal application to establish “Lloyd’s Europe” now looks likely to be submitted in the second quarter, with a launch in 2018 the probable timetable.
The EU currently accounts for just 11 percent of the market’s gross written premiums, or £2.9bn ($3.6bn), and only around 6 percent is believed to be vulnerable to the Brexit decision as a considerable portion can be transacted across borders.
With premiums at this kind of level and a high reliance on reinsurance, the capital lodged to support the new subsidiary is likely to be in the tens of millions, not hundreds of millions, sources said.
Unlike with bank redomiciles, a relatively small number of jobs from the Corporation of Lloyd’s and managing agents are likely to be relocated to Belgium.
Press reports earlier this week that 100 roles would move overseas following the move are given little credence in the market.
Lloyd’s came to the decision after judging the contenders against a series of criteria which included the ability of managing agents to reinsure almost all of the business written in the subsidiary back into London.
Brussels’ regulatory infrastructure and place at the epicentre of the EU may also have worked in Belgium’s favour, while Luxembourg’s lingering – and some would say unfair – reputation as a tax haven may have been a push factor from the tiny Benelux state.
By opting for Belgium, Lloyd’s is plumping for a jurisdiction with a 34.5 percent corporate tax rate and aggressive anti-avoidance rules governing fees paid to low or no-tax jurisdictions such as Bermuda.
VAT rules governing services provided by non-EU parents to local units can also add to the cost of business in Belgium.
However, like other would-be Brexit beneficiaries, the Belgian government has made moves to streamline the application process for financial services companies looking for an EU hub, permitting applications in English and a simplified protocol for companies with licences elsewhere.
With a decision taken on jurisdiction Lloyd’s will need to address questions around the complex structure that it will have to employ to allow a market of more than 50 managing agents running over 80 syndicates to operate via a single company.
China is the only other place in the world where Lloyd’s operates via a company structure.
Individual managing agents utilising the platform will either have to establish service companies to employ staff, or second staff to work at the company, underwriting with some kind of segregated account.
The Corporation will also have to decide how cost will be distributed across the market.
Managing agents with other means of accessing the European Union are unlikely to want to bear a share of the costs, but without their support it could be prohibitively expensive for the smaller players in the market.
