Lloyd’s chief risk officer, Sean McGovern, has explained the potential impact on the London insurance market of the UK voting to leaving the European Union (EU).
His comments come ahead of an EU referendum in the UK – with 23 June being earmarked as a potential date. According to the BBC, UK Prime Minister David Cameron has said it will happen by the end of 2017.
Speaking to the Insurance Institute of London, McGovern warned that exiting the EU will create a "level of uncertainty, for Lloyd’s, for the London market, as well as the UK and European economies, we have rarely experienced".
McGovern said he is leading a team which is building out contingency plans to deal with a range of possible scenarios – with the objective being to ensure that Lloyd’s can continue to provide its market with access to the EU.
McGovern said: "Any change that has competitiveness at the heart of what the EU does must be welcomed. There is progress under the Junker Commission. It is seeking to reposition the EU with various initiatives to free up financial markets through the Capital Markets Union, reduce regulatory burdens that are constraining the ability of financial services to enable business and focus more attention outside the EU through the negotiation of new trade deals."
He noted that the single insurance market, confirmed in the Solvency II regime, means that Lloyd’s underwriters are able to write insurance and reinsurance from all of the other 27 Member States on a cross-border basis and also locally in those countries in which we have branches.
McGovern added: "We operate under a passport system. Our passport permission to trade is granted by the PRA and allows us to establish branches in other Member States. The PRA also has exclusive responsibility for prudential supervision of Lloyd’s within the EU.
"It follows that we are not required to localise any funds in other EU jurisdictions to meet liabilities nor do we have to make local reports to other EU supervisors under EU law.
"The EU Single Market therefore facilitates the efficient deployment of our capital and explicitly authorises the use of letters of credit and bank guarantees as eligible regulatory capital."
McGovern concluded that a vote to leave will create "very real risks and uncertainties" that must be prepared for. "It is also, on balance, hard to see that any relationship the UK might have other than membership of a reformed EU offers the London insurance market something that is better than we have today," commented McGovern.