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London market divided on effects of E.U. exit


A U.K. exit from the European Union would pose “a grave threat” to London insurance market business and jobs, according to a position paper by the International Underwriting Association, Lloyd's of London and Fidelis Underwriting Ltd.

But two high-profile insurance leaders have added their names to the Vote Leave campaign that supports a British exit.

According to the paper, there is a “real and obvious concern” that a “material number” of the 34,000 people directly employed in London's insurance sector could be at risk if the U.K. leaves the E.U., reducing the U.K.'s ability to trade and potentially prompting some companies to move operations elsewhere.

The paper also states that E.U. membership grants the London market a single point of access to a “vast community” of businesses and individuals in the European Union “as well as a single regulatory regime and the ability to attract the best talent from across Europe.”

“It allows insurance companies from elsewhere in Europe to invest in the London market freely, and they have done so to the tune of billions of pounds,” the paper said.

On the regulatory issue, London market companies likely would need supervision equivalent to that of the E.U. Solvency II risk-based capital oversight — “so no scope would exist for our own regulator to ease its requirements,” according to the paper. “Further, London market companies would almost certainly be required to lodge large sums of money in E.U. member countries and make reports to local insurance supervisors.”

According to an IUA member survey, “at least six firms would reconsider the legal status of their London operations in the event of a leave vote, though there may be others,” IUA CEO Dave Matcham said in the paper.

In a London briefing last week, American International Group Inc. CEO Peter Hancock said the New York-based insurer would consider moving its London office elsewhere should Britain leave the E.U., Bloomberg reported.

But not all London market insurance leaders support the “remain” campaign.

Dominic Burke, group CEO of London-based brokerage Jardine Lloyd Thompson Group P.L.C., and Robert Hiscox, life president of major Lloyd's insurer Hiscox Ltd., recently signed a letter on behalf of the Vote Leave campaign.

The letter to the public with more than 100 signatories said problems in the Eurozone — the European currency union of which the United Kingdom is not a member — “may prove insurmountable.”

For example, a 2012 economic slump in Greece plunged the eurozone into an economic crisis and resulted in a bailout for Greece; similar problems could prompt a banking crisis or government debt crisis across the region, experts said.

The letter also said that the E.U. may not provide an environment for innovation.

“Specifically, we worry that the E.U.'s approach to regulation now poses a genuine threat to our financial services industry and to the competitiveness of the City of London,” according to the letter.

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