(Reuters) — Lloyd's of London, the world's largest specialty insurance market, will this week pick Brussels or Luxembourg for its planned European Union subsidiary after Dublin had been an early favorite, sources say.

Lloyd's has been one of London's most vocal financial services firms about the need for an E.U. subsidiary if Britain has no access to the single market after leaving the bloc.

It will announce its choice on Wednesday after its council meets, a Lloyd's spokesman said, the same day British Prime Minister Theresa May triggers Article 50 of the EU's Lisbon Treaty.

Lloyd's shortlist of six locations has been reduced to Brussels and Luxembourg, three sources said. Alongside Dublin's removal, Frankfurt, Malta and Paris have also been dropped.

Lloyd's could move dozens of staff to its subsidiary, rather than the hundreds some banks plan to shift, the sources said.

The choice by Lloyds could affect other insurers' plans.

"As other larger insurers announce their decisions on this matter, it helps inform our choice — we are happy to benefit from their analysis," said one insurance CEO.

Factors influencing the choice include tax, regulation, proximity to clients, as well as staff-related issues such as the presence of international schools and good restaurants, consultants say.

Lloyd's insurer Beazley P.L.C. is turning its Dublin operations into an insurance subsidiary, while Hiscox Ltd. is choosing between Luxembourg and Malta.

U.S. insurer American International Group Inc. chose Luxembourg for its E.U. hub this month.

Nicolas Mackel, head of Luxembourg's financial development agency, said three to four insurers in addition to Lloyd's were close to deciding a location, with Luxembourg among their choices.

Dublin said this month it had received five Brexit-related applications for authorization by insurance or reinsurance firms and five more had signaled a firm intention to apply.

Dublin loses

Dublin was initially seen as first choice for Lloyd's and other U.K.-based insurers after the Brexit vote, helped by its proximity to Britain and use of English.

Ireland, the European hub for insurers Zurich Insurance Group Ltd. and Metlife Inc., identified insurance as an area where it could win new business.

But Brussels and Luxembourg showed more flexibility on capital, allowing Lloyd's to use reinsurance to transfer a larger amount of capital needed for an E.U. subsidiary back to its London headquarters, two sources said.

This cuts the cost of setting up the subsidiary and prevents capital from becoming "trapped" in Europe, restricting its use for investment elsewhere.

"Insurers are keen to work with regulators that ... show some flexibility in tailoring the approach in particular circumstances," said Paul Merry, partner at KPMG, adding regulators were generally comfortable with using reinsurance for 90 percent of an insurer's capital.

Lloyd's is home to around 100 insurance syndicates, but does not underwrite insurance itself.

A spokesman for Luxembourg's regulator said it was not its policy to grant a license for an insurer which reinsured 100 percent of its insurance liabilities. "Each case has of course to be examined on its own merits," he added.

The Brussels regulator did not immediately respond to a request for comment.