March 2016
Scor CEO Denis Kessler has warned that a UK exit from the European Union (EU) would be “a disaster” for (re)insurers in both London and Europe.
Speaking at an Insurance Institute of London event at Lloyd’s today (16 March), Kessler became one of only a few (re)insurance market executives to openly discuss their views on a potential Brexit.
A Brexit would cause uncertainty in the short term as the UK negotiated separate deals with the EU, he opined, adding that the process would last around three to four years before the situation could stabilise.
Over the long term, a Brexit would make London and the UK market less attractive for (re)insurers, Kessler continued. Other regional hubs such as Zurich or Singapore would seek to capitalise on London’s dampened appeal by offering an attractive business environment to investors and major industry players.
In addition, Europe needed the UK to remain in the EU to help avoid increased bureaucracy and unnecessary regulation, he said.
In a wide-ranging speech, the executive went on to highlight a number of headwinds facing the reinsurance industry, including excess capacity pressurising rates and terms, the introduction of Solvency II requirements, the prospect of systemically important financial institution designation for reinsurers, and continued low interest rates.
He also flagged the challenges presented by sustained quantitative easing in a capital-saturated market.
Kessler said central banks should stop flooding the market with liquidity due to the risk that it could stoke claims inflation.
Negative interest rates were cited as another significant headwind, with Kessler noting that they were already hitting carriers’ bottom lines as reinsurers suffered from falling investment returns and a comparatively low reinvestment rate of 2 percent.
Furthermore, the decline of return on assets could also be partially attributed to the introduction of Solvency II capital requirements and changes in rating agency models, Kessler said.
The CEO criticised the regulatory “burden” on companies, saying there should be a moratorium on regulatory changes for years to come.
Finally, Kessler addressed concerns over technological disruption in the industry, saying the insurance market could survive the threat if it was willing to adopt new technologies and invest heavily.
