For Lloyd’s of London, Brexit led to the most complex commercial transaction needed to establish a company in Europe, and the world’s most expensive insurance start-up, says Lloyd’s CEO John Neal.

He is presiding over the continuing makeover — dusting out the old of the venerable 300-year-old institution, ushering in digitalisation and modern practices, including slashing the cost of doing business there.

But when he arrived as new CEO more than three years ago, Lloyd’s, he said, was in a “disappointing state”, without a strong voice in the industry.

He came in as Brexit was forcing Lloyd’s to put bricks and mortar down on the European Continent — just one of the many unanticipated, and expensive, consequences of Britain’s controversial divorce with Europe.

He told The Royal Gazette in a recent interview: “We have always had a physical presence in many locations. But Brexit put a whole different challenge on our infrastructure because we are a marketplace working for the benefit of our participants. We’re not a company.

“Yet Brexit required us to establish an insurance company onshore in Europe, which has been difficult.

“From a commercial and business point of view, no one in business would have wanted Brexit. It makes absolutely no sense whatsoever. And I think people are beginning to realise that.

“So it’s been hard “yards” to re-establish our credentials in Europe. Having said that, it’s given us a focus on Europe we have never had.”

Mr Neal sees the long-term play, the design of a “model Lloyd’s” in Europe, as “short-term pain for long-term gain.”

What did it cost to establish the Brussels infrastructure?

“It’s probably unfair to quote the number. But we’re setting up infrastructure in Brussels, a company in excess of 100 people who were not there before, establishing an operation that has credibility.

“We needed to transfer all of our historical assets and liabilities of our prior obligations — the most complex transaction of that nature that’s ever been undertaken in Europe, the largest start-up insurance company ever established. Without putting a dollar value to that, you can imagine it’s not been cheap.”

And how has Europe responded?

“They have done what I would have done,” he concedes. “They have seen the opportunity to ”twist the knife“ a little bit and challenge the credentials of Lloyd’s, which is crazy really.

“We’ve capitalised an insurance company. We’ve got the entire Lloyd’s balance sheet set behind that capital, so I think that Lloyd’s is one of the best capitalised insurers onshore in Europe.

“But clearly the Europeans have seen it as an opportunity to challenge our credentials, which is what I would have done. If you think there is some opportunity to win some business, have a crack at it. That’s life. All is fair in love and war.

“But post Brexit we’ve had two years in defensive mode. We now have to go on offence.”

The Lloyd’s transformation is partly a technology shift, the first time properly attempted in a quarter of a century, Mr Neal said.

It’s a work in progress, but progress being noticed by the market, after some reluctance, and necessary for more efficiency and removing unnecessary business costs.

Mr Neal’s mission to transform Lloyd’s means making an appropriate return on capital and building a leadership voice on the most important issues of the day, including systemic risks, sustainability and climate.

“The challenge,” he said, “is the reality of change.

“In today’s world the technology is complex because 480 firms are on our systems every day. So it is complex but it is not complicated. The challenge is behaviour, because you don’t just change the technology.”

Using technology to reduce the cost of doing business at Lloyd’s has been helped by the change in who uses the platform.

Mr Neal said that people knew change had to come, that there had to be a reduction in costs. And there has been some pushback. But at Lloyd’s today, he estimates that nearly 70 per cent of the capital operates both on, and off, the Lloyd’s platform.

He points to Mosaic Insurance, for example, and others operating in Bermuda and London.

“They are not operating exclusively at Lloyd’s,” he said, “and nor should they. I don’t think anybody should. I think Lloyd’s should be a part of the equipment and armoury that a credible commercial corporate and speciality insurer has at their disposal.

“And everyone in that space should want to be in Lloyd’s. It has a brand, 180 licences around the world and a high degree of capital efficiency. Those organisations should be deriving those benefits. But they don’t have to operate exclusively at Lloyd’s.”

He says that London has historically undergone renewal every 10 to 20 years, making it different from other European cities. He sees the same cycle in Lloyd’s.

“We are in one of those phases now where we need to think and act differently.

“We have boots on the ground in 38 countries around the world, which is really how we represent and service our licence network. We have 100 insurance licences and 80 reinsurance licences, so really we have three different types of responsibilities: to protect the regulatory framework in the jurisdictions we are in; to promote our capabilities; and to provide services.

“When you look at the Brexit agreement, there was very little discussion on financial services. It’s been painful and expensive but we have been OK. We just need to work our way through it, re-earn our spurs in Europe and get that value proposition better understood.

“We have to think about performance but there are other issues: inflation, interest rates and climate change. Digitalisation over the next couple of years is important.

“And we have to grow. Every successful business has to be able to grow.

“You can’t shrink to greatness.”

In the corporation of Lloyd’s, centrally, actively running the marketplace, there are some 2,000 people. Lloyd’s issues 45,000 passes for those in and out of the building. There are 100 insurance companies and almost 300 broking firms working in the marketplace.

“It is quite a collective,” he says. “If you look at the City of London today, it is insurance. The banks have gone west and east and so there are 50,000 people who work in and around the Lloyd’s building — all related to insurance.

“If you take a macro view, the last 18 months has shown you the value proposition of insurance.

“Systemic risks through Covid, climate, sustainability, inclusion — all the discussions we would want to have. I think everyone is beginning to understand. Whether it is us at Lloyd’s or frankly Bermuda, there is a huge opportunity for insurance.”

What about the push for ESG — insurance, financial services’ involvement in the crucial issues such as the environment and climate change on which politicians and governments have failed to make meaningful progress?

Mr Neal said: “Nothing moves or happens without insurance and I think that’s just begun to be properly understood through the climate debate. The banks have a massive role in terms of financing transition, but so do insurers.

“The difference between business and government, and I mean this respectfully, is that business can make things happen now.

“Governments tend to be slower in terms of the pace at which they can move. COP26 [the 26th UN Climate Change Conference of the Parties in Glasgow in November] was really about the financial services industry.

“Business can lead the discussion and government can then make policy.”

The past three years have whizzed by for John Neal. He enjoys what he is doing. That’s easy to see when he talks so uncompromisingly about his business.

After decades in and around Lloyd’s and working on different continents with businesses that deal with Lloyd’s, he seems ideal for the role — and as much a diplomat as a businessman.

His last job before returning to Lloyd’s as CEO was with QBE Insurance Group Limited, the global insurance and reinsurance company headquartered in Sydney, Australia.

He agrees that Lloyd’s is a good fit at this point in his career, with much to keep him happily working there for some time.

“Lots of things happen in your career because they did. Everyone says you made some interesting choices. But often you don’t make choices. Often, it’s what presents itself to you that determines what you do next. A lot of my career was like that.

“But at the end of 2017, when I stepped downs as the CEO of QBE, for the first time in a long time, I had a choice.”