By Huw Jones, Simon Jessop and Carolyn Cohn
LONDON (Reuters) - England's High Court on Tuesday gave Aviva (LON:AV), Britain’s second largest insurer, approval to transfer around £9 billion in assets to a new Irish company just before the starting gun is fired on Brexit.
The move, timed for 2259 GMT on March 29, is part of a wider withdrawal of business and money by financial companies seeking to keep contracts and policies within the European Union even after Britain departs. Brexit formally takes effect at 2300 GMT on March 29.
London has yet to agree a divorce settlement with the bloc but banks and insurers are shifting hundreds of billions of pounds in assets regardless of the form Brexit takes, reversing decades of European financial market integration and chipping away at the City of London's dominance of it.
The High Court in London approved the transfer of policies after a hearing on Aviva's application last week to move life insurance assets. It had previously secured court approval to move around £1 billion in general insurance assets.
"The current state of extreme and intensifying uncertainty regarding the terms of United Kingdom's departure from the European Union renders the need for certainty of provision all the more pressing," Martin Moore, Aviva's counsel, told the court.
On Friday, NatWest, part of Royal Bank of Scotland (LON:RBS), is due to ask a court in Edinburgh to approve its application to move £6 billion in assets and £7 billion in liabilities from Britain to its Dutch hub.
Aviva and NatWest are moving assets under a legal process known as Part VII transfers, taking up to 18 months and now coming to conclusion.
"Insurers have set up their European insurers and have transferred or are transferring their European business," said Ashley Prebble, an insurance partner at Clifford Chance law firm.
"These are not transfers that will be reversed in the event that a transition period is agreed; this is the new environment."
So far, the amount of business being moved is a small part of the UK financial sector, where total premium income was £224.5 billion in 2016, with banking assets totalling £8.1 trillion in 2018, according to TheCityUK.
Consultancy EY has estimated that £800 billion in assets are being moved from Britain to EU hubs ahead of Brexit.
Most of the policies being moved by Aviva were written in branches across Europe, with just £100 million or so of policies written in Britain.
Aviva said it would move an additional 303 million euros in capital to Dublin as part of the transfer of assets, to cover its life insurance policies, and £89 million to cover those for general insurance.
MONEY MOVES FASTER
For now, money is moving quicker than jobs. A Reuters survey published earlier this month found only around 2,000 jobs in financial services are expected to be moved or created in other EU cities to deal with Brexit.
But the quiet shift of money means less business will be processed in Britain and less tax will be raised by the country's financial sector, currently the biggest source of corporate tax revenue.
Trading in euro-denominated stocks and bonds, along with clearing in euro repurchase agreements, will move to the continent next month.
The Association of British Insurers said insurers operating from Britain have made 36 Part VII applications representing 20 million contracts, using figures from the Bank of England.
Among banks, Britain's Barclays (LON:BARC) secured court approval last month to move 190 billion euros (£166 billion) in assets to a Dublin subsidiary.
Bank of America (NYSE:BAC) Merrill Lynch has transferred $44 billion (£34 billion) in assets to its Dublin based subsidiary, while UBS has secured approval to shift 32 billion euros from London to its German unit.
Japan's Nomura said it would re-allocate $300 million in capital from its London-based subsidiary to other members of its group, while Credit Suisse (SIX:CSGN) said it had moved $200 million of assets and liabilities to its German unit.
Most of the largest international banks are keeping their asset and capital transfer plans confidential, with JP Morgan, Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and Citi all eschewing Part VII applications in favour of repapering contracts client by client.
Aviva was among the last of the big insurers to secure court approval for shifting chunks of life, general, property, casualty and motor insurance policies to EU hubs.
Prudential (LON:PRU) and AIG (NYSE:AIG) were among the first out of the block, the former moving £76 million in assets to Dublin, and the latter shifting £5.6 billion in assets to a Luxembourg hub last year.
Phoenix, a specialist life insurer, will transfer some £18 billion in assets from Britain to Dublin, subject to a hearing in March, representing 582,000 policies.
Lloyd's of London, the world's oldest commercial insurance market, looks set to be among the last and probably the biggest of all, saying it won't complete its coordination of Part VII transfers on behalf of its syndicates until the end of 2020.