The UK’s vote to leave the European Union will be the biggest event that 2016 will be remembered for with many market commentators citing the uncertainly it triggers as a big problem for the industry with a long and protracted negotiation process detailing the terms of exit proceeds.
As 2016 drew to a close, Intelligent Insurer asked a number of re/insurance executives for their opinions on the most important developments in the re/insurance industry in 2016. Several respondents identified the issues surrounding the so-called Brexit as being a pivotal moment for the industry in 2016 and one that will have far reaching consequences.
“Brexit was undoubtedly the biggest issue for the London insurance market in 2016. What has been particularly challenging for the market was the uncertainty which has ensued,” said Steve Hearn, chief executive, Ed.
“It has been almost six months since the referendum and the ramifications for our industry remain unclear. This has meant that some investment, which otherwise would have come to London, has gone elsewhere.”
Hearn said that in his experience decisions are also being deferred until the situation becomes clearer and some businesses are talking about relocating their head offices functions outside the UK.
“This is not surprising. Brexit is bad news for our industry. We need to ensure that the people negotiating Britain’s exit from the EU understand the implications for our industry. At present it does not appear that they do. Lloyd’s will publish its Brexit plan in January which should go some way towards providing an industry position on this issue,” he said.
Iain Bremner, managing director, Barbican Managing Agency, described the vote as a defining moment for the industry which has significant implications for the trading relationships between Lloyd’s and London Market practitioners and EU member states.
“Lloyd’s from the outset has been very proactive in addressing these challenges, and as a member of the Lloyd’s CEO Advisory Board, I have been very encouraged by the approach being taken,” he said.
“Our focus is very much on assessing alternative ways to ensure that the market can retain its existing footprint in Europe, should the UK find itself outside the single market. There is still much uncertainty regarding the potential impact of the UK’s departure from the EU, but Lloyd’s and the London Market are working to ensure that the insurance industry can not only maintain its standing but potentially even benefit by reviewing our overall approach to Europe.”
Chris Waterman, EMEA head of insurance, Fitch, said that the result of the referendum in June 2016 will have lasting implications for the insurance sector. “As large investors, insurers were exposed to the volatility in bond and equity markets that followed the Brexit vote and will be subject to further market volatility over the near-to-medium term,” he said.
“While many insurers have established contingency plans following the ‘leave’ vote, it is difficult for them to adopt definitive strategies to respond to Brexit until exit terms have been agreed. Exit terms will also impact macroeconomic factors such as growth in gross domestic product, interest rates and exchange rates as well as investment market volatility, all of which will have an effect on insurers.”
Jeremy Brazil, director of underwriting, Markel International, added that he believes Brexit has the potential to have a major impact on the industry but how and in what way remains unclear, as it probably will for some time.
“The only thing we are sure about at the moment is that it will create uncertainty and that adds to a sense of fragility, already impacted by high levels of insolvency, and energy price volatility, which affects everything,” he said.
Paddy Jago, global chairman, Willis Re, added that there was an element of irony in the outcome of the vote.
“Political instability is often cited as the reason many UK re/insurance companies have declined to enter markets, often in emerging economies or underdeveloped countries. It’s always been seen as a sensible precaution by boards to wait to see how things might develop.
“How ironic then to see, as a consequence of the Brexit vote in June, political instability erupt so much closer to home. London’s position as one of the world hubs of re/insurance and arguably the centre of activity for Europe came under scrutiny.
“The issue is exacerbated by the fact that politicians are equally confused as to what it all might mean. Since they are tasked with setting the rules and regulations (albeit with some industry input), global stakeholders may well look to put plans on hold in London as they wait to see ‘how things might develop’.”
In total senior executives from companies including Swiss Re, Argo, AM Best, Moody’s Markel, Advent, Barbican, Brit, Ed, Fitch, S&P Global Ratings and Willis Re participated in the examination of 2016. To read the full transcript of their thoughts and comments, please click here.
Ed, London, UK, Steve Hearn, Insurance, Reinsurance, Europe, EU, Brexit, Solvency II, Insolvency, Investment, Barbican, Iain Bremner, London Market