The sale of the building to Ping An highlights relocation options
The future of the world’s most famous insurance and reinsurance market, Lloyd’s of London, hangs in the balance – not the future of the insurance companies themselves, but that of the iconic building that houses them.
German asset manager Commerz Real finished the sale of the Lloyd’s building to Chinese insurance group Ping An for £260m ($385m) this week. The conclusion of the deal has raised questions about the future of the building and the insurance market within it.
Market sources told GR that the organisation is reviewing its options about moving out of the building, and that talks have already taken place with property developers. However, a Lloyd’s spokesman declined to comment on the speculation.
The notion of the market moving out is hard to accept. Where would it go? Who would move into the vacant building? But get past the gut reaction to the idea, and it starts to make more sense.
Designed for a different market
Firstly, the current Lloyd’s building was opened in 1986 and was designed for a different Lloyd’s to the present market. At the time, tradition was everything, and although Richard Rogers’ inside-out new building looked revolutionary, the market carried on as it had before. The market relied on face-to-face meetings in Lloyd’s and the nearby area.
Back in the 80s, prior to the fall of the Iron Curtain, foreign competition was less intense for Lloyd’s, meaning the impetus for change was not so pressing.
Today, Lloyd’s risks losing business to new markets if it does not modernise. Bermuda and Switzerland have grown their insurance presence, and Latin America and Asia are bolstering their local markets, meaning less reason for businesses there to put their risks outside.
The importance of the central trading floor is also being reduced. The London Market Group (LMG) is pushing for electronic endorsements, for example.
Lloyd’s Vision 2025 is to have a small number of powerful overseas hubs to transact business. In essence, Lloyd’s is becoming more decentralised from London.
Lloyd’s also pays a high rent for the building – £16.8m in 2012, according to its most recent annual report. This figure will be reviewed in 2016, and could rise, so the market could see a financial benefit to moving.
Lloyd’s has a clause in its lease that lets it stay in the building for as long as it wants, but it also has a break clause coming up in 2021.
That break clause would give Lloyd’s a chance to make an exit from its iconic home, by which time the Grade I listed building would be 35 years old.
Additionally, the building may have been custom made for the Lloyd’s market, but that does not mean that other industries would not find the building attractive.
A spokesman for architect Richard Rogers, who designed the building, said that the building had been designed to be adaptable, meaning that when the insurance market eventually left the building it could be repurposed easily.
As an example, the spokesman listed a hospital and a school as potential other uses for the Lloyd’s building. While it is hard to imagine sickbeds or classrooms in the place of the underwriting boxes and Lutine Bell, the examples are useful because they help expand the mind to the possibilities of the building.
There are many reasons why Lloyd’s might not move, of course. The market could not move far without inconveniencing the rest of the surrounding insurance market. Then there is the question of finding suitable accommodation in central London, where land is at a premium.
The future location of Lloyd’s is still unclear, but the Ping An deal has brought renewed attention to the possibility of a move. The market will be watching events closely.