Matthew Moore, President and Managing Director of Liberty Specialty Markets, says it is possible for the insurance industry to create stability amid 2020’s still-volatile political climate.
I think it’s fair to say that stability has been in short supply in the UK for a few years now. Stability in terms of the country’s future direction and in terms of the insurance market, too. With rates generally much softer than many would desire, the insurance industry’s ability to navigate a course towards more favourable conditions has been hampered by macro factors. After all, even the best compass in the world is of little use if the poles keep moving. In parallel, the need to innovate, to incorporate AI and machine learning into our business processes and to keep up with algorithm-powered new entrants is creating its own direction of travel.
The good news is that 2020 has brought with it a sense that our future is solidifying. The first stage of Brexit has concluded. Ahead of us lie negotiations that will define Britain’s trading relationship with the European Union (EU) which will clearly impact profoundly on our industry. Once Britain leaves the EU, it will enter a transition period until 31 December this year, during which time its trading relationship with its European partners will continue unchanged.
For the City, the next big step should come in June, by which time the EU aims to have decided on equivalence in 26 areas of financial services.
This will determine whether the City is to be allowed to continue trading with Europe as it does today. This is important because services make up 80% of the UK economy while Britain exports about £60bn annually in financial and legal services to the EU.
But even though the degree of stability is increasing, it would be wrong to think that businesses are helpless in the face of uncertainty. One must accept those things that cannot be changed while focusing on those that can. Businesses always have the power to tighten their grip on the situation based on the actions they take – which is what Liberty Specialty Markets opted to do. Back in 2017, we announced plans to set up a European operation in Luxembourg and to redomicile our European business there, converting our London office into a branch of the Luxembourg-based company. By March 2019, that redomiciling process was complete and we held our first board meeting of our European company in Luxembourg. A degree of stability regained.
The advantages of moving our European headquarters to Luxembourg were compelling. A European-based and regulated corporate entity provides the necessary passporting rights to operate a Pan-European insurance business regardless of the detail of the deal ultimately struck between Britain and the EU. It guarantees clients and brokers that business can continue as usual: risks can be underwritten, claims paid. And nothing in the British-EU negotiations will change that.
But, to resort to a slightly zen-like turn of phrase, stability also comes from within. The size and strength of a risk carrier’s balance sheet has a profound impact on those organisations that partner with it. Not only does a strong balance sheet provide its owner with the resilience and independence necessary to make smart decisions, it offers protection to clients and a healthy trading relationship to brokers. Let’s not forget that insurance, by its very nature, is all about creating stability. It is a promise to maintain a status quo in the midst of difficult circumstances.
So, as the London market watches proceedings with a degree of trepidation, I take comfort from the knowledge that Liberty has carved out a stable platform in the midst of this turmoil. We may not know when the Ts will be crossed or the Is dotted, but we do know that we will continue to serve our clients across Europe and offer the powerful protection of our balance sheet.
Political posturing and brinkmanship will doubtless fill our newspapers and media for months to come – possibly years – on the issue of Brexit. Stability may seem elusive in such an environment. But it is possible to take the steps necessary to create stability. We achieved that by starting with a single question: what do our clients need?