Editor's comment: Protectionism and Brexit - FREE

Editor's comment: Protectionism and Brexit - FREE

Revolution

Protectionism is about the worst enemy that international re/insurance faces, aside from Armageddon at the hands of war or natural catastrophe. So while the sector continues to get on with business as usual, the political environment is becoming a source of uncertainty these days.

Take some good news that came out just as Reactions went to press. Champagne corks could be heard popping at the Parisian offices of Scor on the evening of July 12. Scor was celebrating winning its battle against Caisse Centrale de Reassurance (CCR), with a court ruling that France’s public reinsurer must end its near-monopoly on French natural catastrophe business, unless it can convince the European Commission to uphold its protected status. 

Scor’s chairman and CEO Denis Kessler had understandably objected to CCR’s virtual monopoly through its exclusive deal with the French state, which means it holds more than 90% of France’s insured natural catastrophe exposure.

Another blow struck for free market liberalism, you might say. Well, yes. But it is a victory against the tide of bigger events. Kessler usually bristles if you call Scor a French reinsurer – quite rightly – because it is an international group and the beneficiary of global diversification. In contrast, France’s insurance market is traditionally quite protectionist, much more so than that of the UK. You could say the same to some extent of Germany. For all those three countries are members of the EU’s single market – for now, at least, in the case of the UK, since its historic Brexit vote – Europe’s single market is still far from a level playing field across the continent.

I was reminded of an entertaining conversation had with a friendly London market figure over a bottle of Merlot at this year’s Reactions London Market Awards. They pointed out that while you can name many French, German or Spanish insurers that have made success stories of themselves in the UK and London market, it is very much a question of one-way traffic.

This was as votes were being counted for the UK’s referendum. Indeed, people thought Remain would triumph until about three hours later, as the results began to pour in, with the final result timed perfectly with an after-awards-do’s morning hangover.

But what they meant was that for all the EU’s single market is far from uniform in practice, London has been very much its spiritual home. In France, the single market has been politically unpopular as representing “ultra-liberal” Anglo-Saxon values – i.e. exactly the sort of free market that reinsurance requires to thrive on a diversified, globalised scale. 

The UK meanwhile, embraced the spirit of the EU single market, allowing a thousand flowers to bloom in EC3, to misuse a Chairman Mao aphorism.

With the UK poised to quit the EU within the next two years, the single market is the only aspect of EU membership which really matters to the London market’s prosperity. Protecting “passporting” access is paramount to any successful lobby. 

Regulatory aspects are a done deal anyway: nobody would seriously want to revise Solvency II implementation after so much money spent and so much risk attached to not being equivalent.

So the UK will lose its voice at the table of EU members. That is the case, whether or not the UK’s negotiating team in Brussels can secure a deal that preserves the City of London’s privileged access to the single market, in exchange for whatever freedom of movement (immigration) compromises that an angered EU will demand in return.

The empty UK seat in Brussels means that the EU project has retreated back to its Franco-German beginnings, as its other members are either too weak – Spain, Italy – or too small or new – Eastern European members – to the club to take over the UK’s traditional liberal influence on Brussels policymaking.

Those are the countries, along with Ireland as the UK’s closest neighbour, that have relied on British free market instincts to temper moments of French and German protectionist impulses. 

Now those countries find themselves without a champion to represent their interests. The single market, as a successful project of liberal economics, will gradually be chipped away, becoming much weaker as a result.

By David Benyon – dbenyon@euromoneyplc.com

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