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Uncertainty looms for Lloyd's as U.K. considers E.U. exit

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A U.K. exit from the European Union would create uncertainty for Lloyd's of London and the wider London insurance market, Sean McGovern, chief risk officer and general counsel of Lloyd's, said Wednesday.

In a speech to the Insurance Institute of London, Mr. McGovern said Lloyd's has been working on contingency plans to ensure that it can continue to provide the market access to the European Union under a number of possible scenarios.

The U.K. government will hold a referendum on the country's membership in the European Union before the end of 2017, and the vote may be as soon as June 23 of this year.

Mr. McGovern told attendees that the United Kingdom's membership in the European Union has been part of the success story that has made the London market a global hub for commercial and specialty risk.

He noted that the European Union represents about 33% market share of the global insurance market and total premium volume of about €1.4 trillion ($1.562 trillion).

“Access to this huge insurance market on London's doorstep is clearly a matter of some significance to the London insurance market,” he said.

“We would conservatively estimate that the London insurance market writes £6 billion ($8.70 billion) of premium (volume) from the European Union,” he said.

Mr. McGovern noted also that the Lloyd's market has a long history of hiring talent from Europe and pointed out that the market's first-ever chairman, Martin van Mierop, was Dutch.

“For pragmatic reasons, Lloyd's has therefore been a long-term supporter of the United Kingdom's membership of the European Union and the opportunities it provides for cross-border trade,” he said.

U.K. membership of the European Union confers three important benefits on the London insurance market, Mr. McGovern said: access to the single market; encouragement of foreign direct investment; and facilitation of trade with countries outside of the European Union.

“These benefits are, in my view, critical to the success of the London insurance market and its position as the world's largest specialist insurance and reinsurance center,” he said.

The single insurance market, cemented by the Solvency II risk-based capital regulatory regime that came into force in Europe in January, means that Lloyd's underwriters can write insurance and reinsurance from all 27 E.U. member states on a cross-border basis as well as locally in the countries, such as France, Germany, Italy and Spain, where Lloyd's has branches, Mr. McGovern explained.

Mr. McGovern said that while some have criticized the costs and regulatory burdens associated with Solvency II, it should be remembered that U.K. regulators “were at the E.U. table when the Solvency II regime was designed” and that it is built upon “regulatory concepts which our own regulators have supported and advocated.”