Insurance Post

Post Europe - the challenge of control

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Choosing where to headquarter a business can be a challenge for any European insurer but as Jakki May explains the trend may well be to move away from UK dominance.

The challenge of choosing the right location for any major business is always a tricky one. While the obvious starting point may have been the place where most business is carried out, other factors may start to influence that decision.

Tax, sourcing of raw materials or sourcing of talent may all factor in the ultimate decision while, for financial services, the regulatory environment often has a key part to play. And other factors, such as spoken language and the personal preference of the board directors, may also figure in that final decision.

European headquarters
So, while much of the insurance industry has traditionally developed out of London, there may be many good reasons why not everyone chooses to head quarter in the UK.

And as other European destinations continue to expand and compete internationally, is there any reason why the head of an insurance company should be in London overseeing business in Germany or France, for example, when it would be perfectly practicable for the CEO to be in either of those countries overseeing London?

Virtual borders
At WNS, a business process outsourcing company, Jeremy Owenson, vice president of its insurance practice, believes insurance is a virtual product and can be offered across borders.

Instead of those in the UK considering themselves at the heart of the insurance industry, WNS believes "the UK is actually an 'off-shore'" location for a large proportion of the world's insurance trade and the UK needs to think of itself as a "'territory' rather than the centre of the trade."

Mr Owenson suggests there is a need to start thinking "globally" and "virtually" and to recognise quality wherever it is.

Domicile moves
In the past few years a number of UK headquartered firms have moved domiciles within Europe, for example, there has been the move by Zurich to Ireland and by Brit to the Netherlands, but Mr Owenson suggests that those anywhere in Europe might soon have bosses based in India, Singapore or the United Arab Emirates.

Taxation specialist Colin Graham, a partner at Pricewater Coopers, says the trend of the past few years has meant that overall far fewer insurance firms are left with headquarters in the UK, "both as a result of merger and aquisition activity as well as some companies up and leaving the UK".

UK Taxation
However, he says, the pattern is changing once more. While five years ago there was a trend to move, for the past 12-18 months, many companies have put that decision on hold while they wait to see what the new British government will do in terms of taxation.

"Things are different now. The government is focused on providing a more competitive position which has probably caused headquarters to pause for thought," he says.

Three years ago there was a trend for moves towards Bermuda but now there seems to be a 'drift' away from the island and more groups are moving into the wider Europe. To move purely for tax purposes is not always as straightforward as it seems.

Scattered problems
Mr Graham explains that it can result with executives being scattered in a number of jurisdictions and having to travel extensively to fulfil their functions.

Arbitrage opportunities
For European operations, the issue is compounded by the impending Solvency II regulation. Another partner at Pricewater Coopers, Jim Bichard, sees a shift as corporations are restructured into single entities with a branch system, "leaving one centrally based CEO and a lot of branch managers".

Both of them agree that while Solvency II is designed to bring harmonisation there is "still some opportunity for arbitrage" and it may be that companies choose to relocate to take advantage.

One aspect that Mr Bichard is watching closely is the penchant for single European entities, which have not been hugely popular to date but which allows swift redomicilation within the European Union.

Single entities
Mr Bichard says he is waiting to see if an increased number of firms adopt the SE approach in a bid to have the greatest flexibility under Solvency II.

He explains there is no one factor affecting companies' decisions but it tends to be a combination of several factors which result in change, not least where the greatest talent pool lies: "There are a whole raft of things going on."

However, one question for the future will be the effect of the restructuring. "We often find a restructuring which creates one CEO and a lot of branch managers is often followed by a reduction in head count among the senior executives," says Mr Bichard.

Synergy solutions
While Mr Graham agrees that maybe the effect of one day being a CEO in a particular territory and then the next day becoming branch manager with a boss elsewhere is enough to encourage the managers to look elsewhere, it could simply be a case of "synergies or efficiencies".

One company that has placed high value on its overseas directors is the Dual Group, the underwriting arm of the Hyperion Insurance Group.

Paul Ferris, Dual's chief underwriting officer, stresses that its first office was opened in Madrid and although it has expanded around the world - with more than 60% of business underwritten outside the UK - it has stood by its mantra of the importance of local knowledge and management.

Local know-how
"It is true that the head office is in London but it is a decentralised operation. The CEO actually comes from the US not London, but elsewhere we will have a German managing director in Germany, the Spanish MD is Spanish and the UK MD is British.

"The insurance business is all about people and people prefer to do business with those they understand. We think local market experience is essential and having a local person who understands the local culture and the regulatory environment is crucial."

However, he does acknowledge that the firm is in the minority because "London is perceived to be at the centre. A lot of insurers and brokers start up in London and then look outwards and in doing so it must be tempting to put their own people into other territories".

Being the best
However, Mr Ferris says he is seeing some change slowly as European insurance markets grow. And there is recruitment from across Europe as companies look simply for the best candidate rather than choosing someone because they are home-grown.

Mr Ferris points to Rolf Tolle, the former franchise performance director, at Lloyd's as an example of a European in a key UK role, for example.

Mobility benefits
There is increasing mobility across Europe in terms of jobs and according to Mr Ferris there is little evidence of any resentment in terms of the nationality of the boss.

There is a danger that any boss can be accused of arrogance but fortunately, again, Mr Ferris sees little firm evidence of that - though he admits that sometimes that be more a case of British people being too polite to say what they truly think.

 

 

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