A report by Kennedys has found that there is near universal agreement amongst senior insurance executives that the London insurance market would be severely damaged were the UK to leave the EU.
It has, however, also said that a leave vote could relieve pressure on the UK to limit non-EU migration, addressing concerns about the UK’s current ability to compete for global non-EU talent.
The report, Brexit: the insurers speak, has used intelligence gathered to date on the potential impact of a Brexit, and sought out the in-depth views of 20 senior industry executives to help insurers understand what a vote ‘in’ or ‘out’ would mean.
All but one of the executives backed the UK remaining in Europe. The uncertainty of renegotiating a new settlement and the risk of London losing its globally dominant role were the key concerns highlighted in the report. The market impact of those concerns would however be uneven.
In the short term, firms expected the immediate impact to be on sterling, credit spreads and interest rates. There is concern that over the few years following a Brexit, this could create downward pressure on employment, output and ultimately GDP growth.
Firms that make use of passporting rights to do business across Europe suggested that Brexit could become a major source of M&A activity in the sector as insurers look to acquire or divest their EU business units.
The report says: “The uncertainty associated with a leave vote could provide a strong incentive to relocate business to other insurance hubs around the world, particularly in the London Market, where the client base is global and the workforce is highly mobile.”
Executives said that businesses could start to relocate from the UK within one to two years of an ‘out’ vote, while some suggested that jobs could relocate ‘within weeks’.
Most respondents thought it would prove difficult, if not impossible, for the UK to negotiate an exit that maintained full EU market access, and were very worried about how long it would take to reach free trade agreements around the world.
Nick Thomas, Kennedys’ senior partner, said: “We created this report not to suggest to anyone how they should vote, but to identify the issues that will arise for business leaders in the insurance industry to resolve in the event of a remain vote, and those to be addressed in the event of a leave vote.
“That our research found widespread support for continued EU membership among insurance industry leaders is clear. Where I hope this report transcends mere reportage is by exploring the nuances around that finding, in order to provide a comprehensive and objective review of the threats and opportunities arising either way, without looking to support any eventual recommendation or agenda.
“All of that said, this looks like a vote which is going to be led in the main by hearts rather than heads and I have no doubt that whatever the outcome the UK insurance market will do what it has to do to retain its position as global market leader.”