Lloyds Banking Group PLC (ADR)(NYSE: LYG) shifting base to Brussels

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Lloyds Banking Group PLC (ADR)(NYSE: LYG), the specialist insurance and reinsurance market, has announced that it will set up a European insurance company in Brussels in preparation for Brexit. LYG has chosen Brussels as the site for its European Union subsidiary because of its strong regulatory framework. After Lloyds decision, Brussels aims to attract other financial players to shift their base.

Meanwhile, initially the two places were shortlisted Brussels and Luxembourg, then the decision was taken for Brussels. U.S. insurer AIG had said this month that it was setting up an EU hub in Luxembourg, and Lloyd’s insurer Hiscox is choosing between Luxembourg and Malta. Brussels was attractive because of its talented workforce and place at the heart of the EU, as per Nelson. Lloyd’s gets around 11 percent of its business from Europe excluding Britain. Further, Dublin, which was initially been a favorite for LYG’s and other insurers’ EU subsidiaries, has complained to the European Commission that it is being undercut by rival centers. Royal London has said that it was converting its Irish business into a regulated subsidiary.

LYG’s EU subsidiary aims to be ready to write insurance business in time for the January 1st, 2019 renewal season. The subsidiary will be able to reinsure its business back to London, on similar lines to other LYG’s hubs such as China, a model which made Brussels’ pitch attractive.

The UK will remain a full member of the EU until Brexit is finalized and it has now crucial that the UK government and the European Union proceed to negotiate an agreement that will allow business to continue to flow under the best possible conditions once the UK formally leaves the EU.

On the other hand, LYG’s of London has reported pre-tax profit of 2.1 billion pounds for 2016, steady from 2015. But underwriting profit fall sharply to 500 million pounds from 2 billion, due to the strong competition and large losses from natural catastrophes. By setting up a Brussels-based company, LYG will be able to write risks from all 27 European Union and three European Economic Area states (Iceland, Liechtenstein and Norway) after the United Kingdom has left the EU.

There is a mixed view on the LYG stock by the analysts. Berenberg has issued has rating on the LYG in a research note issued to investors on March 27th, 2017, the stock received “Downgrade” rating from Hold to Sell. Additionally HSBC Securities issued their verdict on the stock of the company, on record date of February 06th, 17 the stock was “Upgraded” from Hold to Buy.

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