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“Insurance is a mobile business,” he said. “In common with other financial institutions, we need to put our plans in place — at least on a precautionary basis.”

Lloyd’s preferred option remains to keep its European operations concentrated in London. It is possible that the market might shelve its relocation plans if a “no change” deal is struck between the EU and London allowing British financial businesses to trade freely through the single market.

The new subsidiary will cost in the tens of millions to set up and will increase the market’s operating cost, notably in compliance and regulation. Lloyd’s will also have to capitalise the venture separately, which will also place an additional burden on members.

The news emerged as MPs and regulators stepped up pressure on the government to buy the industry more time by seeking transitional arrangements to avert a “cliff edge” effect after Brexit.

A House of Lords committee report called on ministers to make such arrangements an urgent priority when Article 50 is triggered early next year to prevent financial services firms from restructuring or relocating on the basis of a “worst-case” scenario.

The chair of the EU financial affairs subcommittee, Baroness Falkner, expressed concern that the government was not making this objective enough of a priority. Referring to evidence given to the committee by the City minister, Simon Kirby, she said that “he did not seem as seized of the matter as we might have expected him to be”.

The committee’s call has also been echoed by the UK’s top supervisor of banks and insurers, who told parliamentarians that transitional arrangements to smooth Britain’s exit from the European Union should be agreed ideally within nine months after the official Brexit mechanism is triggered.

In common with other financial institutions, we need to put our plans in place — at least on a precautionary basis
Lloyd’s chairman, John Nelson
Sam Woods, head of the Bank of England’s Prudential Regulation Authority, told the Treasury select committee on Wednesday that clarity around transitional arrangements was vital for financial stability, not just for the UK but for Europe too.

“The important thing is to have some kind of clarity on the transitional [deal], and the sooner the better,” Mr Woods told MPs. Such a deal “would reduce the risks but this seems just as true for the EU as it would be for the UK”.

He added: “Firms will make their first sort of decisions [around contingency planning] in a small number of months . . . the sooner a transitional arrangement is agreed the better in terms of obviating activities, and letting regulators here and on the continent agree” a course of action.

Mr Woods’ position is in line with his boss, Mark Carney, governor of the Bank of England. The chancellor, Philip Hammond, has also called for transitional arrangements, which some Brexiters view with scepticism because they are pushing for a “clean break” with the EU.

David Davis, Brexit secretary, also conceded on Wednesday that transitional arrangements may be needed.

Mr Davis had earlier said that a trade deal could be agreed alongside a divorce settlement within the two-year Article 50 process, a view not widely shared in the Treasury or in Brussels.