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The Calendar of Uncertainty 

Posted November 23, 2016

By David Worsfold

You could have joked earlier this year that you foresaw a nightmare scenario of the United Kingdom voting to leave the European Union, Boris Johnson becoming Prime Minister and Donald Trump being elected President of the United States. Most people would have laughed that off as an implausible triple whammy of unexpected disruptive events. Most insurers probably only marginally tweaked investment strategies just in case one of them happened, if they did anything at all.

Wind forward a few months. Brexit is with us, Johnson is Foreign Secretary and Trump is President. That’s 2.5 out of three on the nightmare scale.

Now that Brexit and President Trump are a reality, many will argue that it won’t be so bad after all, indeed there are those that see significant benefits in both. That isn’t really the point as far as the financial markets are concerned. The point is that they are unexpected, disruptive events. They are uncertainty and volatility writ large.

Uncertainty. Volatility. Two words that most insurance companies instinctively recoil from, especially in the context of the low return world we currently occupy. There is little room for manoeuvre, especially if you find yourself reacting to events along with everybody else.

Many millions of words have already been written trying to understand Brexit and Trump and many millions will follow before we fully understand the reasons for those unexpected events and the consequences. One thing we do know is that there is a rising tide of nationalism across the western world, with rejection of globalisation and established political orders at its heart. Many commentators describe this phenomenon as populism but that seems too comfortable a word to describe something that has inescapably sinister undertones.

However comfortable or uncomfortable this phenomenon might make us feel it is a reality and will have plenty of opportunities to disrupt the most finely tuned investment strategy as we head into 2017. Indeed, it could be a very bumpy ride and perhaps insurers should nail a few dates into their diaries now.

Diary of Uncertainty

4 December – Italian Constitutional Referendum
20 January – Inauguration of President Trump
15 March – Dutch Parliamentary Elections
March – UK triggers Article 50
23 April & 7 May – French Presidential Elections
Between 27 August and 22 October – German Federal Elections

Each of these events has the potential to generate huge political and financial turmoil.

Italian Constitutional Referendum

Prime Minister Matteo Renzi failed to get an ambitious package of constitutional reforms aimed at ending the chronic instability of Italian governments – of which there have been 63 in 70 years since the birth of the Republic – through Parliament. He has been forced to hold a referendum and has said he will resign if they are not passed. At the moment, it looks unlikely that the reforms will be passed. Another general election could see the internet-based Five Star Movement led by comedian Beppe Grillo making significant gains.

Inauguration of President Trump 

By the time Donald Trump gets to make his Inauguration speech, we will know what his government looks like and should have a much clearer idea of his early priorities. Early indications have already raised alarm bells and are highly divisive.

Dutch Parliamentary Elections 

The Dutch elections will almost certainly see a change of government as support for Prime Minister Mark Rutte’s Labour Party (PvDA) has collapsed from 40% at the last election in 2012 to around 10%. The main beneficiary has been the right-wing, anti-immigrant Party for Freedom (PVV) led by Geert Wilders which has led in the opinion polls for most of 2016. In government or as the main opposition party in a hung Parliament it could force through a referendum on Dutch membership of the EU which it opposes.

UK triggers Article 50

Prime Minister Theresa May has said this will happen in March 2017 regardless of the decision of the Supreme Court and any subsequent need for a vote in Parliament. In the run-up to that we should get some clarity on the government’s negotiating stance and whether issues around access to the single market and passporting for financial institutions are likely to form any sort of red line in the negotiations.

French Presidential Elections

At the moment, the only certainty is that the Front National candidate Marine Le Pen will poll very strongly, almost certainly making it through to the second ballot as her opponents are still in some disarray. The FN is a fiercely nationalist party which has opposed the European Union since the party was launched in 1993. A Le Pen presidency could mark the end of the EU and totally change the terms of the Brexit debate.

German Federal Elections 

There has been a steady growth in support for Alternative für Deutschland, a rightwing party opposed to the Euro and further European integration but not currently advocating that Germany leave the EU. It has been picking up seats across Germany in state elections and is currently on course to win its first seats in the Bundestag, easily crossing the 5% threshold. This could destabilise Angela Merkel’s grand coalition.

Six key moments of uncertainty over the next year. Brext and Trump were both easily dismissed earlier this year. Insurers can’t afford to make the same mistakes again. They need comprehensive contingency strategies for each and everyone of those potentially disruptive events.


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