AIG to set up post-Brexit base in Luxembourg

AIG is to set up a new base in Luxembourg after the UK leaves the EU as the likely loss of passporting rights post Brexit has forced the US insurer to look for an alternative location to London from which to service EU business.

The choice of Luxembourg is a sign of a shift in attitudes in the insurance world. Immediately after the Brexit vote, there was an assumption that most insurers would decamp to Dublin where there is already a thriving reinsurance industry. Ireland was one of the locations that AIG considered.

Recently, destinations in continental Europe have become more popular. Lloyd’s, the insurance market, is likely to set up a new business in one of the Benelux countries, for example.

Anthony Baldwin, chief executive of AIG Europe, said: “This is a decisive move that ensures AIG is positioned for whatever form the UK’s exit from the EU ultimately takes.

“AIG sees opportunity in the ongoing resilience of the UK insurance market. At the same time, we are ensuring that our clients and partners experience no disruption from the UK’s EU exit.”

AIG, which has its European head office in London, added: “The majority of the business we will write out of the Luxembourg entity will be in continental Europe and geographic proximity is a benefit. Luxembourg is a core member of the European Union, and has a stable economy and an experienced and well-respected insurance regulator.”

The insurer would not comment on the number of staff that would have to move to the Grand Duchy, but it said there would be “some changes at a Europe senior leadership level”.

It still intends to retain a significant presence in London. “AIG will continue to support its European operations from the UK,” the company said.

AIG’s move comes as London’s specialist insurance industry steps up its lobbying efforts ahead of the UK’s Brexit negotiations.

The industry in London controls £60bn of premiums and contributes about a fifth of the City’s gross domestic product.

The London Market Group, which represents the specialist underwriters and brokers that operate in and around Lloyd’s, will on Thursday publish a “road map” setting out what it thinks the industry needs from Brexit.

The group lays out three priorities. First, it wants the UK regulatory regime to have equivalence with the EU. Second, it wants a trade deal which will give UK and EU insurers “continued rights to undertake cross border activity”. Finally, it wants a transition period to avoid a “cliff edge” on the day the UK departs.

“We want to keep the opportunity for London to be a global centre of excellence,” said Nicolas Aubert, chairman of the LMG. “A trade deal is the only way for us to make sure we can provide comprehensive cover wherever they are.”

He warned that a “cliff edge” exit with no trade deal would increase the disparities in the market. “The large brokers would be able to operate, they would find a way to play,” he said. “But there would be challenges for small specialist brokers. It is the same for the insurers — the large groups would find a way but it would change the market for the small, highly specialist players. The market would be less vibrant and less diverse.”