Sean McGovern: why staying in the EU is a rational decision (source: Lloyd’s of London)
We talk to Lloyd’s Chief Risk Officer & General Counsel, Sean McGovern, about why it’s in the market’s interest for the UK to remain part of the EU.
He may be adamant it is in the market’s interests the UK should remain within the European Union, but Sean McGovern is no passionate or uncritical Europhile. Indeed, he has spent the past 17 years working in London at Lloyd’s, including a stint as North America Director, and he is more likely to be found sailing off the coast of his hometown of Brighton than holidaying in the South of France.
The European question could hardly be more pressing following Prime Minister David Cameron’s promise to hold a referendum on Britain’s membership of the EU by the end of 2017, if his Conservative party wins the next election.
McGovern, a lawyer by background, believes the current political and public debate around the issue is far too heated. “Opponents are often divided on emotional, not factual grounds and the discussion is frequently ill-informed.”
His calculation that it is in Lloyd’s interests for the UK to stick with Europe is based on cold, rational analysis. In reality, he warns, business decisions taken as a consequence of the UK exiting the EU would be made on “hard-headed, economic grounds alone”. A recent case in point is a major US investment bank’s intention, in case of the so-called “Brexit”, to relocate its London team to the Continent.
So what does McGovern, who oversees legal, government and regulatory affairs and risk management for Lloyd’s, see as the consequences for the market if the UK leaves the EU? First, he emphasises how important European business is to Lloyd’s. Some 15% of its premium income is from the EU, excluding the UK. Thus, “any change to the way we access that income will have to be looked at carefully”.
The ease of doing business with these countries that Lloyd’s currently enjoys as a result of being based in an EU member state is uniquely valuable, says McGovern. “We access EU countries using the fundamental freedoms of the Single Market, including the freedom to provide services cross-border and the freedom to establish in member states.”
This means Lloyd’s can sell both direct and reinsurance business cross-border into other EU countries, and open offices there, without having to comply with additional local prudential regulations. “We simply have to comply with the regulations of our Home State regulator in the UK.”
An automatic right to do business is invaluable
If Britain were to leave the EU and be outside the Single Market, it would become a ‘third country’. This would result in the loss of Lloyd’s current automatic right to do business throughout the Union based on an EU passport. Instead it would have to negotiate new license arrangements with individual EU members, and “it is unlikely there would be any centralised process for this”, says McGovern.
He adds: “You normally can’t do business in a country without being established there, including holding some level of capital and reserves locally, and reporting and filing with the local regulator.” So, setting all this up in other EU Member States would mean a significant and costly upheaval for Lloyd’s and a fundamental change in the distribution of its business. How long this process might take is unclear, but there would be a period of uncertainty and disruption, says McGovern. “One can surmise that brokers, and clients of brokers, may find other carriers during that time, and there is a risk that, even if we could secure licenses, they may not return.”
McGovern points out that such relationships already exist: “A number of businesses within Lloyd’s do have insurance companies outside the market and they may well choose to write insurance through another part of their group.”
Read the full interview with Sean McGovern in the latest edition of Market Magazine (page 21)