In London, U.S. Election Brings End to Lengthy Uncertainty

LONDON, Nov 06, 2008 (A. M. Best via COMTEX) -- LLTHF | Quote | Chart | News | PowerRating -- As seen from London, the election of Barack Obama as president of the United States offers a welcome relief from a long period of uncertainty.

Major elections always inject ?optimism and enthusiasm into the market, particularly in the U.S.,? said Elizabeth Stephens, head of credit and political risk analysis at brokers Jardine Lloyd Thompson Group plc in London.

The election symbolized ?change and something new,? Stephens said, adding that this would have been the result even if the Republican candidate, John McCain, had won.

The markets are likely to take comfort from the broad range of power won by the Democrats, Stephens said, noting their gains in the Senate and the House of Representatives. This, she suggested, will give the new president the opportunity to make changes, notably in his first 100 days in office.

There are a number of long-standing trans-Atlantic issues that are likely to assert themselves during an Obama administration.

Lloyd?s and the International Underwriting Association, for instance, have argued repeatedly, and with some effect, that U.S. rules on collateralization are unfair to non-U.S. reinsurers. There is a feeling in Europe that it would be nice to be able to deal with a single U.S. insurance commissioner rather than 50 state commissioners. And, apart from insurance, there is hope that the new administration will be more willing than its predecessor to listen to its friends and to seek to build consensus.

On the political front, Stephens said U.K. Prime Minister Gordon Brown is likely to welcome the Obama victory. The British Labor Party traditionally has had friendly connections with the Democrats. Similar sympathies have been discerned between the Republicans and the British Conservatives.

?I?m sure he [Brown] is actually delighted with the U.S. election,? Stephens said. ?He will be looking for a closer partnership.?

Far-reaching change from Washington, Stephens suggested, could be stymied by economic reality that includes heavy indebtedness. She said she believes that credit card debt in the United States approaches the $700 billion (442.3 billion pound) level of the recent bank bailout. She also is concerned by what she describes as the increased threat of house repossessions.

?There is limited room for maneuver, because of the legacy? inherited from the Bush administration, Stephens said, asking: ?Would you actually want to be president at this time??

The current climate should make it easier for Obama to strengthen financial regulation, Stephens said. ?Regulation is traditionally a dirty word in America, particularly amongst the Republicans,? she said.

Stephens will be watching to see how a stricter U.S. regulatory regime might affect U.K. businesses that have operations in the United States. She is particularly critical of existing extradition arrangements, which she regards as ?too harsh.?

The ?NatWest Three? case, which involved the extradition in 2006 of three British bankers to the United States on fraud charges, and their subsequent guilty pleas and imprisonment, sent a chill through the British business community. Some executives voiced the fear that they could find themselves in U.S. custody as a result of actions carried out in the United Kingdom.

One possible effect of the election might be a bounce in the stock market, said Kevin Ryan, an insurance analyst at ING Financial Markets in London. Ryan pointed to some profit-taking in the immediate aftermath of the vote.

The resolution of the contest, Ryan said, removed an uncertainty. ?Markets fret about things like elections,? he said.

Ryan said he believes some foreign issues may go to the back burner. ?One might expect the Democrats to look at domestic business first,? he said.

Within the United States, Ryan detects ?clear concerns among health insurers [about] what the Democrats might do on that score.?

Roman Cizdyn, an insurance industry analyst at Blue Oar Securities in London, said there have been few indications of the likely policy direction of the new administration in relation to insurance and financial services. ?We?re just in a wait-and-see mode,? Cizdyn said in a telephone interview.

The major development in this area have already taken place in the form of the Bush administration?s bank bailout, he said. The next stage will be to see that it succeeds, he said. ?The financial rescue is the top priority and overrides everything,? Cizdyn said.

(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)

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