Europe without UK

What Brexit means for German insurers

The citizens of the United Kingdom have spoken. We now live in a different, weaker Europe. What the UK and EU must do now is swiftly create a clear framework and implement the will of the British people – no ifs and buts. By Jörg von Fürstenwerth, Chairman of the Executive Board of the German Insurance Association (GDV)

“Dear Brits, please stay”, I wrote in this column last week. And I admit, never in my wildest dreams did I imagine there would actually be a majority for Brexit. Judging by the reaction of the financial markets it wasn’t just me.

Brexit is a wake-up call
Of course, I belong to a generation to whom the European Union primarily stands for a prolonged period of peace, reconciliation with Germany’s neighbours and prosperity. The aggravation caused by an occasionally unbearable European bureaucracy with excessive regulation, a political system detached from people and markets, and a growing lack of respect for its own set of laws, is something we were prepared to tolerate as collateral damage. It was all for the greater good, after all.

Brexit is a loud wake-up call! But looking at the first reactions from „professional Europeans“, who now seem to think we need even more integration, I am not sure that wake-up call was really heard.

What is done cannot be undone
“Dear Brits, please stay”, I wrote. And now the first one has already gone, vacating a role that affects us as insurance companies. Jonathan Hill, a British national who, in his role as European commissioner, championed reforms of the European financial sector, announced his resignation, saying he couldn’t simply carry on and pretend nothing happened. “What is done cannot be undone”, he said.

The voters in the UK have made their decision, and we need to respect that. For obvious reasons, I think this decision is wrong. But even if an increasing number of British people seem to come to that realisation, too, now, even if there is talk about a second referendum bubbling up and academics say there never was a “real majority” for Brexit, I am afraid Jonathan Hill is right. What is done cannot be undone.

We cannot have a period of uncertainty
German insurance companies are among the country’s biggest institutional investors and among the top 3 insurance markets in Europe. No matter what direction the UK is going to take, Europe and we as insurance companies cannot have a period of limbo. The British vote has triggered great uncertainty. It is up to British and European politicians now to act quickly and create a clear and predictable framework – a roadmap for the future. Even though I admit this is easier said than done.

In our industry, the uncertainty created by the UK’s vote the leave the EU affects decision-makers and frontline personnel alike – and of course our clients, too. Turning to our clients I would like to stress the following:

  • German insurers, with the exception of listed companies, are only indirectly affected by Brexit-induced market volatility, i.e. in their capacity as investors on behalf of their clients.
  • The insurance business requires predictability, especially the pension business; therefore insurers avoid risky and volatile assets, anyway.
  • The assets are managed by professionals who are used to dealing with such situations.

The political landscape is already changing
Nonetheless, on a macroeconomic level, Brexit marks a watershed moment. The resignation of Britain’s EU financial services commissioner shows that the political landscape is already changing. We as insurance companies are players in a heavily regulated market, both on a national and European level. That is why political changes can have a huge influence on our business. Solvency II, the new European regulatory framework for the insurance industry, has only been in force for a few months. It is almost funny now, that it was the UK of all EU members that played a central role in developing those standards.

The UK’s pragmatic and market-driven approach, that always stood against excessive regulation, will be missed at the European negotiating tables. Europe’s biggest insurance market will not be part of the European Union any longer. This is deeply regrettable. The terms of the relationship with the United Kingdom need to be renegotiated. Europe needs the UK just as much as the UK needs Europe. And we all need a fair set of rules now, no cherry picking of course, but a calm and open mind in shaping the future.

Many have read „The Sleepwalkers“ by Christopher Clark. That excellent book has crossed my mind again and again these past days. What matters now is to carefully shape the future of Europe, take the people’s concerns seriously and hear the wake-up call!

We will be sure to do our part.

Yours truly

Jörg von Fürstenwerth

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