Financial markets volatility has been the immediate short-term reaction to the historic outcome of the UK’s EU referendum, with industry players here not immune to the effects.
Insurance Council of New Zealand (ICNZ) CEO Tim Grafton said Council members who were multi-national insurers with exposure to Europe and the UK could see some negative impact as their euros and pounds currencies depreciate, but there was uncertainty around how long that would be sustained.
“It’s likely that it will be (sustained) given that uncertainty usually gets marked down by financial markets, so that’s one impact,” he told
Insurance Business.
“I guess what we wouldn’t want to see is a more general financial market depression, because sustained weakness in equity markets and other asset values has an impact on investment returns, and those are not particularly strong in any event.
“So that has a downside risk for return on equity for insurance and premium growth has been reasonably flat as well. We haven’t seen that play out yet but that will be the worst case scenario.”
One insurer member,
QBE, issued a statement to the market this morning, saying the referendum result ‘may require a revised approach’ to European business but that it expected no day to day changes to its business.
“The referendum outcome may require a revised approach in relation to approximately GBP500 million of insurance and reinsurance premium that QBE currently sources from member countries that is written via branches of UK regulated entities under current EU passporting rules,” the statement said.
“Should EU passporting rules not be preserved, QBE will be required to renew this business into newly established licensed EU entities.
“The exit transition timetable is expected to take a minimum of two years. This period provides ample time for any requisite administrative transition and to ensure our service commitments to QBE’s European customers are uninterrupted. Thus our ability to source business from EU member countries remains unchanged.
“Accordingly, QBE does not anticipate any material impact on our day to day insurance operations as a result of the UK’s decision to leave the EU.”
Grafton echoed this, adding that the longer term effects would be dependent on how negotiations for the British exit were conducted.
“A lot of the commentary at the moment is focussing on the trade-off between free movement of labour through Europe.
“This is what is likely to be the ability for London to have access into Europe and it looks very much like no matter what happens, that will become less free in the future and that may possibly mean that those located in doing business from London may look to relocate elsewhere from within the EU.
“So we have to see what develops as a result of negotiations between the UK and the EU, and that’s something that will play out over the next couple of years.
“If there is a difference between the UK and the EU and there’s a divergence in regulatory framework then that would be a little bit more of a complication.”
Adding to that complication, was the further political uncertainty in the UK with flow-on effects of its changing political leaderships amongst the two major parties, and whether Scotland and Northern Ireland would remain part of the United Kingdom, he said.
However, the history and standing of the London market should sustain it through the considerable buffeting.
“The London market is very well regulated and it sets a very high bar. There is a very strong preference for the London market in terms of having an English legal framework to be operating under as it is long-established, and very sound.
“So to move operations solely on an EU environment with a regulatory environment that is somewhat less predictable in terms of what might come out from 28 countries, or now 27 countries, is another factor that weighs up the other way.”
CBL Insurance managing director
Peter Harris said the issue of insurers shifting domiciles would be a factor affecting brokers.
“All brokers are going to find that UK insurers and their compliance departments are going to be fully focused and occupied on shifting domiciles,” he said.
“Many will not want to shift their UK domicile into an EU domicile, because it could make it non-compliant for its UK business. Splitting its operation and capital base would raise even further complexities.”
Lloyd’s general representative in Australia, Chris Mackinnon, was quick to assure the sector that Lloyd’s international trading rights outside of the EU were unaffected by the Brexit decision.
“Lloyd’s has prepared for this outcome, and following Friday’s result it will be putting into action a contingency plan to ensure that it can continue to access its European markets,” he said, adding that until the UK formally informs the EU of its intention to leave, Lloyd’s would continue to operate within the single market under the current EU rules and regulations as it does today.
He went on: “Lloyd’s will be working closely with the UK Government, European Governments, regulators and the European Union on this transition.
“Given Lloyd’s position at the heart of the global insurance and reinsurance sector, and the financial strength, expertise, and innovation of the Lloyd’s market and its participants, I have every confidence that we will continue to flourish.”
Harris added that Brexit uncertainty could well spell opportunity for some European insurers as British insurers grappled with the changes, but he supported Mackinnon’s belief that the UK would remain an important part of the global market.
“London and Lloyd’s have played a leading role in the world for over 300 years,” Harris said.
“They have dealt with many extreme events over this time, and whilst Brexit is a historic event for Britain, I am sure that the London insurance market will cope with this, and retain its leading role in the insurance industry.
“They may be on the back foot for a little while however.”
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