The crisis of confidence afflicting the London equity market has raised important questions about the growth environment for UK companies.
The sense of treading water is not limited to the stock exchange, though.
Some senior figures in London’s specialist market for insurance and reinsurance, centred around Lloyd’s of London, have warned for years that sluggish regulators and crudely drawn rules are causing it to lose ground.
While any UK sector risks being overhyped as “world-beating” by ebullient politicians, London’s centuries-old insurance market has a credible claim.
It is renowned for insuring and reinsuring the biggest and most esoteric risks — from energy infrastructure to cyber. It contributes just under a quarter of the City’s economic output, according to an industry estimate. Limiting access to London’s insurance market after Russia’s invasion of Ukraine last year was a key part of the UK’s moves to put pressure on Moscow, giving heft to its financial sanctions.
But there is growing unease over that assumed primacy. London’s share of the global insurance market, at just under 8 per cent, has been “stagnant” in recent years, says Caroline Wagstaff, chief executive of the London Market Group, an umbrella trade body for the City’s specialist insurance sector.
She argues there are two broad problems: a “one-size-fits-all” regulation that treats all insurance buyers, whether they be “Auntie Floppy buying her caravan insurance” or a sophisticated corporate purchaser, equally, creating undue administrative burden.
The other is the slow pace of signoffs for a range of needed regulatory authorisations, a problem across the financial sector. In a report earlier this year, trade body TheCityUK said financial regulators can “often fail to meet their statutory deadlines for processing authorisation applications”, and “frequently breached deadlines” for approving key executives within firms, in particular.
Some change is coming. The Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority are getting new secondary objectives to facilitate competitiveness and economic growth. The government earlier this month issued a consultation on the kind of performance metrics and information the FCA and PRA should publish in relation to their new objectives.
The London Market Group is urging regulators to publish a comparative analysis of how the UK is doing versus other financial jurisdictions, including the numbers of new firms approved, time taken to greenlight applications and rejection rates. It is also pushing for new metrics such as assigning a case handler within five days of a new application being put forward, to arrest slipping timetables.
The worry for some is that any operational improvements will come too late for one of the sector’s fast-growing segments to take root in London: insurance-linked securities (ILS), where investors provide what is essentially a form of reinsurance that pays out when a given event, such as a damaging storm, has happened.
“It was hoped that there would be more, and we have to look at that,” said then City minister John Glen last year, when there had been just eight ILS approvals over the five years since enabling legislation was passed. The Bank of England made some changes last year to speed up decision times.
Wagstaff argues that London’s attempt to mount an ILS challenge has “failed” given the low number of securities authorised so far. Regulators “were slow and cautious and risk-averse — that doesn’t happen in Singapore or Bermuda,” she added. Last year she told a House of Lords committee that Singapore, a newer ILS hub with a similar framework but a regulator perceived as speedier, had scooped up $700mn of investment that “could have come to London”.
Optimists can point to London Bridge, a new framework for allowing institutional investors to put money to work within Lloyd’s, which it says is just as speedy to implement as ILS transactions in other markets.
Another long-held concern will not be addressed by the competitiveness drive. Other jurisdictions have stolen a march on the UK in developing bespoke regulatory frameworks for captive insurance companies: entities set up within a group of companies to effectively self-insure risks. The government last year promised “further work” in this area.
A degree of caution over new structures, introducing new risks, is understandable. And the London market is generally in decent health, thanks to the rising cost of insurance. Lloyd’s alone expects premiums to rise from almost £47bn in 2022 to £56bn this year.
But the stock market’s troubles demonstrate that a longer-term view is required. London also needs a closer assessment of its attractiveness as a place to do insurance business.