"Itis a complete fantasy" to expect the U.K. government to be able to maketrade agreements with European regulators and governments "on anythinglike a reasonable timetable" following a British exit from the EU,Lloyd's of LondonChairman John Nelson said in an April 28 speech.
"You'veheard what President Obama has said. You've heard what other countries havesaid. It's just not possible," Nelson told an audience invited to Lloyd'sof London's 1 Lime St. home to discuss the possible impact of a Brexit if theU.K. were to vote to leave the EU after the June 23 referendum.
Amongthe benefits of EU membership currently enjoyed by the insurance industry arethe "passporting" arrangements allowing insurers and other parts ofthe financial industry that have met regulatory requirements in the U.K. toconduct business anywhere in the EU without impediment. Leaving the EU wouldmean U.K. insurers lose this right.
"Itis quite clearly in Lloyd's interest that we stay in the EU," Nelson said.Aside from potentially seeing an end to passporting rights, he also said theU.K. would no longer benefit from the bilateral trade agreements that the EUhas with countries outside the bloc, which makes it easier for Lloyd's ofLondon insurers to do business overseas. Finally, he said a Brexit would makeit more difficult for the Lloyd's marketplace to attract capital from outsidethe U.K.
"It'svery important for the [Lloyd's] market to stay in," he added.
If aBrexit is on the cards, U.K. insurers could set up subsidiaries in the EU whichcould apply for passporting rights. But that could lead to a loss of both jobsand U.K. tax revenue. It could also discourage U.S., Asian and other non-U.K.insurers from setting up subsidiaries in the U.K.
Nelsonalso underscored that the Brexit vote is happening as "the insuranceindustry is probably facing its most challenging period," as ultra-lowinterest rates and quantitative easing drive down bond yields on safe assets,eating into insurers' investment income.
"Thereis frankly no sign of this changing for the foreseeable future," he said."This is changing the nature of the market."
Anumber of other senior figures in U.K. insurance have voiced their to leaving the EU,warning, among other things, that the move could threaten the U.K.'s positionas Europe's insurance and reinsurance hub.
Lloyd'sof London Chief Risk Officer Sean McGovern said in a speech Feb. 10 that aBrexit would "create a level of uncertainty for Lloyd's, for the Londonmarket as well as the U.K. and European economies [that] we have rarelyexperienced."
Meanwhile,Gerry Grimstone, chairman of Standard Life Plc and of TheCityUK, which promotesBritain as a financial center, described a Brexit as being "disastrous forLondon and the U.K."
CEOStephen Hester has warned that a Brexit would have a negative impact on thecompany's business and investment returns.
DavidPage, a senior economist at AXA Investment Managers, told a conference atLloyd's of London in March that 15 years after a vote to leave the bloc, theU.K. economy would be between 2% and 7% smaller than if voters had opted toremain in the EU.
Apoll of more than 100 economists conducted by the Financial Times at the beginning of 2016 found that 76% thought theU.K. economy in general would be worse off in the medium term of Brexit,against 8% who thought it would be better off.
Inthe insurance industry, not everyone believes the U.K.'s capital should fear aBrexit. In a discussion with S&P Global Market Intelligence published inMarch, John Hurrell, CEO of U.K. risk and insurance trade body Airmic,said London'sattractiveness in terms of expertise, reputation and market infrastructuremeans that it will continue to be a global market magnet, regardless of thereferendum's outcome.