As we enter the final weeks of 2012, the mood in the City of London could hardly be grimmer. Equity trading volumes are shrinking and the turnover in the gilts market has plummeted now that the Bank of England owns most of the bonds. Mergers and acquisition activity is slowly grinding to a halt and no one is very much interested in derivative products. Even currency dealing, after several stellar growth years, is now in reverse. As a consequence jobs are being shed in the tens of thousands. The estimated bonus pool for city workers this year is a fraction of the sky-high levels reached before the economic crisis. The talk is of Hong Kong in addition to New York soon eclipsing London as a world financial centre. More worrying is that this could all signal a more permanent decline in the city’s dominance of global financial markets. Last week the Centre for Economic and Business Research blamed over-regulation, penal taxation and banker-bashing as well as an inevitable economic shift to the east for the dire picture that is emerging.

The backdrop might be harsh and cheerless, yet in our corner of the square mile; the outlook for the London insurance market is fortunately much brighter. If anything our sector is picking up some of the slack left behind by the bankers. Reinsurers are bracing themselves for the bill from super storm Sandy but even so virtually all companies are awash with capital and producing very strong profits. Figures from the Office for National Statistics suggest that despite job loss announcements at Aviva and RBS Direct Line, employment in the industry is declining only slightly. Office space in the new major flagship EC3 properties, like the Leadenhall Building and 20 Fenchurch Street, is nearly all being snapped up by insurance businesses.

On the global stage, the contrast between London insurers, freshly invigorated and self-confident, and the bankers, despondent and in retreat is equally as stark. Lloyd’s Vision 2025 launched earlier this year offers an ambitious and dynamic agenda of developing a truly internationalised underwriting community; a more diversified capital base and deeper penetration especially into the world’s emerging markets. The relocation this year of the group senior management of the largest insurance broker Aon from Chicago to the city is seen by many as a significant endorsement of London’s position as the natural global hub for the future in specialist insurance and reinsurance.

Happy days perhaps but some clouds on the horizon cannot be ignored. Like the bankers, the costs of compliance with an ever tougher regulatory regime will potentially eat away at the competitiveness of the London insurance market if we allow it too; process reform if ignored for much longer will start to bite underwriters and brokers in the city as clients select simpler and more efficient alternatives locally; and product development needs to be given greater prority if London is to remain relevant and meet the demands of our clients for solutions to supply chain, reputational harm, cyber-security and other emerging risks. It is no time for complacency therefore. As our friends in stock broking and investment banking are learning, although it might take years to build, a leading global position can also be lost very quickly.