Mayor of Cologne in London to promote city as EU insurance hub

Henriette Reker, the Mayor of Cologne, was in London today to meet leading representatives of the London insurance and reinsurance market and explain why Cologne should be considered as a viable option for UK and international insurers seeking a base for their European Union (EU) operations. The bulk of premium generated by Lloyd’s still comes from the US, with increasing business from emerging regions such as Asia. But Europe does account for a significant volume of business. Lloyd’s, for example, attracts about £7bn in premiums a year from Europe. The companies within the International Underwriting Association (IUA) also underwrite a significant volume of European business. It seems highly unlikely that the UK government and the EU will agree a Brexit deal whereby insurers and reinsurers based in the UK could continue to underwrite business directly from London on the same basis as today. At the very least, UK-based insurers and reinsurers will almost certainly need a fully-fledged European subsidiary that is regulated within the EU, and reinsure the business back to London. This is why most of the leading London market insurers have already announced plans to protect their European businesses by setting up EU operations in specialist insurance centres such as Dublin and Luxembourg. Lloyd’s itself is currently negotiating the creation of a subsidiary with the Belgian insurance supervisor, to be based in Brussels. Ms Reker, long-term mayor of Cologne, will meet senior representatives of Lloyd’s and the IUA today to explain why this leading German city offers a highly attractive option. Cologne is the fourth biggest city in Germany, with more than one million inhabitants, and has a long and rich insurance tradition. Cologne Re, the world’s first reinsurance company, now part of the Berkshire Hathaway group, was created there in 1846 and the Gerling Group, now part of Talanx, was founded in the city in 1904. Cologne has almost 25,000 individuals working for 73 German insurance companies, 60 branch offices of German insurers and 20 international insurers already located in the city. This represents well over 10% of all German insurers. The delegation will further explain to Lloyd’s and the IUA that in April last year, Cologne’s insurance business was given a further important boost when it was authorised to be the prime location for Germany’s digital insurance hub under the German Federal Ministry for Economic Affairs and Energy’s ‘de:hub’ initiative. The joint initiative – backed by several German insurers headquartered in the Cologne region, universities, startups and supporting companies – is called InsurLab Germany and will enable Cologne to be at the forefront of the digital revolution in the insurance and reinsurance market, stated the city. Cologne also has two leading universities – Cologne University of Applied Science and University of Cologne – that offer advanced training in insurance and reinsurance. The University of Applied Science organises the annual Cologne Reinsurance Symposium, which this year takes place on 5 June, and will attract more than 500 senior executives from the German and international insurance and reinsurance industry. As London and UK-based insurance and reinsurance companies consider their options post-Brexit, the City of Cologne and the Cologne Chamber of Commerce have teamed up to explain to the market what the city has to offer. “London-based insurers and reinsurers have rightly moved fast to make sure that they can continue doing business in the European Union after the UK leaves the EU. This is not surprising given that so many international insurers and reinsurers chose London as their bridgehead into Europe over the years and now have to protect this access to the huge EU markets, including Germany that generates some €198bn in annual premium alone,” said Ms Reker. Adding: “Clearly, many insurers and reinsurers have chosen established and alternative EU-based insurance centres such as Luxembourg and Dublin to continue doing business in the EU post-Brexit. But we would argue that Cologne offers a fantastic long-term option for UK and international insurers and reinsurers that are serious about the EU market and want to offer their customers real service on the ground. “We are situated in the heart of Europe’s biggest insurance market here in Germany, have the skilled people, support services and international outlook needed for this most international of businesses and, with the creation of InsurLab Germany here in Cologne, are right at the cutting edge of the future of the risk transfer business in Europe. Customers of insurers and reinsurers based here in Cologne can also be assured of the highest standards of regulatory oversight provided by the national German insurance supervisor, the BaFin,” continued Ms Reker. The Cologne delegation is clearly aware of the fact that most London market insurers and reinsurers have already made moves to protect their business in the EU by creating operations in centres such as Dublin and Luxembourg. But recent statements from the European Insurance and Occupational Pensions Authority (EIOPA), the body created to oversee EU insurance regulation, suggest that these operations may turn out to be temporary bases. Is seems unlikely in the longer run that EIOPA and the EU will allow London-based insurers and reinsurers to create low cost and thinly staffed subsidiaries in such centres and simply reinsure all the business back to London. Mauella Zweimuller, senior executive at EIOPA, said during a recent speech: “EIOPA expects undertakings to show an appropriate level of corporate substance; EIOPA will not accept characteristics of empty shells. The supervisors should carefully scrutinise any transfer of risks and require a minimum retention of risks from the authorised undertaking. As an indication, a minimum retention of 10 % of the business written could be envisaged. “Outsourcing of undertakings’ important functions should be subject to the full responsibility of the management body for the outsourced activity and shall not materially impair the quality of governance, increase operational risk, impair the ability of supervisors to monitor compliance, or undermine continuous and satisfactory service to policyholders,” she added. “The principles set out in our opinion [published last summer] will support the national supervisory authorities to secure sound and convergent practices. Sound supervision demands appropriate location of management and key functions. Empty shells or letterboxes are not acceptable,” concluded the regulator. If the EU demands that such subsidiaries actually underwrite the business within the EU from fully staffed operations – probably by imposing high retention levels for EU business – then London and international insurers and reinsurers will have to make big decisions about where to make the investment. The Cologne delegation clearly believes that it offers a good long-term option, as companies based there will be able to access its local and regional market, as well as the wider EU under BaFin regulations.

Mayor of Cologne in London to promote city as EU insurance hub

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