If you listen to the Prudential, it looks bad. Last week, the UK’s biggest insurer indicated that it might consider relocating in the event of an “adverse outcome” from the Solvency II regime, due to take effect in Europe from 2014. Today, it came out and said the same thing again.
The problem is that Solvency II requires insurance firms to hold more capital, particular at their US businesses, where Solvency II doesn’t grant their existing capital holdings equivalent status. Analysts at Morgan Stanley have calculated that Prudential may be required to increase the capital it holds at its US subsidiary by more than 250%.
Hence Prudential’s threat to move to a location likeHong Kong. And where Prudential goes first, other insurers may well follow.
This would clearly be disastrous for the UK’s insurance industry, which employs over 300,000 people across the UK.
However, the threats of apocalypse may be overdone.
Barrie Cornes, insurance analyst at Panmure Gordon, says: “Our concern is that this might be a case of sabre rattling ahead of clarification on Solvency II.”
Similarly, Olivier Vidal, strategy manager at the specialist recruitment consultancy High Finance Group says insurers are mindful of the dangers of impairing their competitiveness long term if they leave the City and its supply of insurance talent.
Promisingly, insurers have been making noises about moving on for some time – but haven’t done anything about it. Vidal points out that European insurers have talked about moving their operations to Dublin for tax reasons, but haven’t done anything about it. The CEO of Netherlands-based Aegon threatened to relocate the company away Europe because of Solvency II back in 2010, but Aegon is still in exactly the same place. Equally reassuringly, the chief executive of Aviva has indicated he has no plans to relocate due to Solvency II, stating: “We're extremely committed to theUK- in fact we love theUK."
It’s also cheering that not all insurance business is affected by Solvency II. Aon, the US broker with a market capitalisation of $15bn is actually moving its HQ from Chicago to London to be part of the capital’s insurance ‘hub.’ It helps that Aon is a broker and does not carry insurance risks.
“In our opinion there is no need to worry about fewer jobs in insurance in London. But we are seeing a growing number of insurers choosing to do business in Zurich, where there is strong demand for capital, risk, actuarial and finance positions at mid-market and senior level” says Mr Vidal.
Zurich Financial Services is extensively recruiting and the Bermuda-based reinsurance companies set up in the last five years are growing strongly, he adds.
For anyone thinking of moving from London to Zurich, Mr Vidal says: “It is very easy to continue your financial services career in Zurich in a very sympathetic environment. Living costs are high, but you tend to be paid at least a third more than you are in London.
“An actuary in London with 4-5 years experience will earn around £80k, in Madrid€55k and in Zurich £100k,” Vidal adds.