What steps we will take next – Japan’s insurance, automotive, aerospace post Brexit

shutterstock_407998837The Nikkei Business magazine has started a series called “Brexit shock”, where they ask various leading executives with business interests in Europe what they think the impact will be.  This week they’ve interviewed Tsuyoshi Nagano, CEO of Tokio Marine Holdings (property and casualty insurance) and Yoshihisa Kainuma, President of Minebea (another one of those Japanese secret successes with dominant shares in vital but unglamorous sectors such as ball bearings and pivot assemblies)

Tokio Marine acquired Kiln, a Lloyds underwriter in 2007 and the US company HCC Insurance, which also has a presence in the UK.  “The UK has developed as the centre of our European business” says Nagano.  HCC and Kiln put a plan together to grab more European business.  Both companies have set up internal teams to review our response. “One area we have to check immediately is what will happen to our insurance licenses.  Up until now, if we qualified in the UK then we could do business anywhere in Europe.  With Brexit, we may have to gain licenses in each EU country or increase our capital per branch or subsidiary.  We think the direct impact on our performance will be small.  Our earnings from the UK and Europe only represent around 3% of our total sales.  However, because it is unclear how Brexit will roll out, there are many unclear areas for our future development.  If our clients, who are mainly Japanese companies, start moving their operations and expatriates from the UK to other countries, then absolutely we will have to follow them. This is just a possibility, but for example HCC has an operation in Spain, currently a branch of London – this could be changed into an incorporated subsidiary to coordinate our European Union business.  Kiln’s headquarters are in London, but we could strengthen their operations in Germany or France.”

“Of most concern to us is the impact on life insurance business.  Yields on 30 year bonds are going below 0.05%.  Brexit has also pushed Japan into negative interest rates.  If a high yen continues, and more relatively safe Japanese bonds are bought, then interest rates will go even lower, with impacts on the Japanese economy.

“I also wonder if this does not represent the collapse of the postwar UK/US centered liberal global system.  Our biggest concern is the worst case of unpredictable political and economic turmoil that may follow”

Minebea employs around 1500-2000 people in Europe, with 1 factory in Lincoln, UK, 3 factories in Germany, 1 factory in Slovakia and 1 in Czech Republic and sales offices in Germany, Italy, France and Austria.

Kainuma comments that he thought up until now that the UK had been good at integrating immigrants – he visits UK regularly and had been unaware that there were resentments around immigration among the lower socio-economic groups.  He didn’t think it would end in Brexit.  “However the UK is the mother of democracy, so if the people will it, it can make sudden changes.  So I am feeling optimistic.”

“Direct impacts will be felt by the UK’s own aerospace parts manufacturers.  We are currently selling into Airbus, but as the pound has gone down, we have actually become more competitive.”

“What we are concerned about is whether there will be any tariffs imposed once the UK leaves the EU, but I don’t expect this for aerospace.  The EU is in fierce competition with Boeing.  So they need to maintain a stable framework for procuring parts cheaply.  As for household electrical goods, the UK hardly has any manufacturing and most products are made in Eastern Europe.  So it may be that sales in the UK will slacken because of the cheap pound.”

“As for the automotive industry – EU manufacturers are competing fiercely amongst themselves, so I think it is quite likely that tariffs will be imposed both on parts and on vehicles.  This will have an impact on European car manufacturers’ export strategies.  There may be some influence on vehicle sales into the UK for some brands, but generally the car industry is in good shape in Europe, so that will be compensated for by other manufacturers.”

“Minebea is supplying to car manufacturers around the world, so overall we can hedge and I don’t think there will be a big impact on overall orders.  However we need to keep an eye on UK domestic demand and the European economy overall. Even though our share price decreased when the Brexit vote was announced, I think this was an overreaction.”



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