E.U. exit could cause mayhem for U.K. buyersReprints
Risk managers in the United Kingdom are weighing possible changes in risk profiles of their organizations if the British public votes to leave the European Union.
On June 23, voters will go to the polls in a binding referendum that will decide whether Britain remains a member of the European Union or leaves the economic, trading and political bloc.
The latest opinion polls suggest the result will be close, with a mid-June ORB International KMS Ltd. survey putting sentiment to stay at 48% and to leave at 40%, with 3% undecided.
Other polls put the vote leaning more toward leaving the E.U.
If the U.K. opts out of the E.U., there likely would be some immediate stock market volatility, and that could hurt buyers and insurers, “so we are looking at that on clients' behalf,” said Mark Weil, CEO of Marsh U.K. and Ireland, part of Marsh L.L.C.
“From the buyer's perspective, we are a global organization and so we would have our own issues” if the U.K. left the E.U., said Tracey Skinner, London-based director of group insurance and risk financing at BT Group P.L.C. “Dealing with the short-term chaos it would create would be an additional problem on top of that.”
“As a corporation, we have a neutral position,” said Nicolas Aubert, head of Great Britain at Willis Towers Watson P.L.C. in London. But there could be issues for clients of the insurance brokerage should the U.K. exit the E.U., he said.
Last week, Peter Hancock, CEO of American International Group Inc., said AIG would consider moving its London hub elsewhere in the E.U. should Britain exit, Bloomberg reported.
Clients and insurers, including Lloyd's of London, could be subject to short-term financial and economic volatility, he said.
Financial market volatility could hurt insurers' balance sheets, which could affect buyers' counterparty credit risks if insurers are downgraded, said Charles Beresford-Davies, U.K. managing director and risk management practice leader at Marsh Ltd. in London.
Leaving the E.U. also could put mergers and acquisitions on hold, he said.
Companies discussing a deal with a European counterpart face “myriad risks” should the U.K. exit, such as uncertainty about future regulation, and “risk managers need to be plugged into that,” Mr. Beresford-Davies said.
Even before the vote, “we have seen clients holding off on decisions on M&A” until after the referendum, he said.
Hold on passporting?
A U.K. departure would have broad implications for “clients, service providers and insurers,” Mr. Beresford-Davies said.
For one, what is known as passporting allows entities regulated in one E.U. member state to sell products throughout the European Union via that entity.
Passporting also is used in putting together global insurance programs and makes collecting claims simpler, he said.
But there is no guarantee that European regulators would allow U.K. companies to continue to use passporting after a U.K. exit., said Richard Pryce, CEO of the European operations at QBE Insurance Group Ltd. in London.
In addition, said Mr. Beresford-Davies, any changes to the ability of labor to freely move between Britain and E.U. members states could create talent and personnel challenges.
Likewise, limits on moving goods and services between Britain and E.U. member states could create risk management issues such as regulatory turmoil, said Mr. Aubert.
“For the Lloyd's market, Brexit would be a disaster,” said Paul Jardine, executive vice president and chief experience officer at XL Catlin and deputy chair of Lloyd's of London.
While the ability to passport could be replicated, it would “take time and be very expensive,” he said.
On the other hand, Mark Drummond Brady, deputy CEO of Jardine Lloyd Thompson Group P.L.C., said he believes there would be time to adjust to a U.K. exit and that the impact would be minimal on brokerages.
If Britain votes to leave the E.U., there would be a roughly two-year transition period as it extricates itself from E.U. rules and oversight, sources said.