Will further globalisation and the appeal of domiciles like Bermuda topple Lloyd's from its perch? Anita Anandarajah reports
Lloyd’s retains its top spot on the list of the UK’s Top 50 Insurers this year, but like the rest of the domestic market, it is facing the threat of globalisation. Over the past year, a number of Lloyd’s insurers have hightailed to the sunnier shores of Bermuda.
Hiscox, Kiln and Omega have redomiciled; Canopius is in the process of setting up a Bermudian platform. Meanwhile, Hardy is still contemplating its move to the archipelago, which bills itself as the global home of reinsurance and boasts a 0% corporation tax rate compared to the UK’s 30% - soon to be 28%.
Can London, and Lloyd’s, the birthplace of insurance, compete with this magnetic pull?
Kiln chief financial officer Peter Haynes insists the UK capital is not under threat and believes the two markets are complementary.
“Bermuda gives certain flexibilities that Lloyd's doesn't and conversely Lloyd's offers other advantages in terms of capital efficiency and licenses,” he says. “It’s a global market and different business opportunities need to be sourced from different locations.”
Catlin led the charge to Bermuda in 1999, but chief operating officer Paul Jardine is confident about London’s future.
“People are saying that Bermuda will cause the downfall of Lloyd’s. I don’t think we’ll see that happen. London is a very vibrant market with Lloyd’s being the most significant piece of the market,” he says.
Instead, he believes people have set up separate businesses in Bermuda because it can attract business that does not come to London - for example, catastrophe reinsurance and casualty reinsurance.
Bermuda can also offer access to different sources of capital.
“We believe that it is possible to deploy that capital in response to opportunities more quickly from there than it is from London,” says Haynes.
“Additionally, its proximity to the US, where over 40% of our business comes from, is helpful.
One company that prides itself in being committed to the London market place via its recently-launched platform in Bermuda is Canopius. Chairman Michael Watson does not see that this poses any threat to its London market business.
“In our case, we will actually bring more business to Lloyd’s because we will be writing on Lloyd’s paper,” he says.
“As insurance penetration increases in local markets, there is a need for capital. There isn’t always enough capital to supply local market demand, so a piece of that will continue to flow to Lloyd’s in London.
“If we establish an operation overseas it does not mean we are taking business away from Lloyd’s; rather, it is to expand the underwriting operations of the group as a whole.
“In general, what Lloyd’s businesses are doing outside of Lloyd’s is incremental to their groups. They are not cannibalising their existing underwriting at Lloyd’s by writing somewhere else. They are writing additional business on their own balance sheets,” Watson adds.
A Lloyd's spokesperson said: "Although a number of businesses have redomiciled, Lloyd's has not seen a loss of business to Bermuda.
"In fact the overall trend in the market has been for Bermudian businesses to invest capital in Lloyd's in order for them to broaden and diversify their portfolios. Lloyd's sees this as a healthy relationship with Bermudian businesses as both competitors and as investors.
"Overall Lloyd's is in a very strong position and we continue to work hard to make London attractive place to be."
However some businesses remain unconvinced. Hardy Underwriting is one that is keeping its options open.
Chief executive Barbara Merry says the company is not yet satisfied that there is a proper business case for moving to Bermuda.
“We feel strongly that we cannot justify to our shareholders a decision to redomicile purely for tax reasons,” she says.
Hardy is holding out hopes that the government will cut corporation tax further than the 2p reduction to 28p in the pound due to take affect in April, but is realistic about the chances of this happening.
“If we’re honest we don’t see the possibility of relief being given to insurers in the UK. In the longer term, shareholders expect to improve returns on equity and dividends. Inevitably we’re going to have to face the question of Bermuda – we’re beginning to see it as a very credible market.”
