London-based insurers get jittery over 'Brexit' fear

* Trade body ABI among those highlighting uncertainty

* Concerns over ability to sell across bloc

* Lloyd's flags potential cost hit to syndicates

By Carolyn Cohn

LONDON, June 4 (Reuters) - Insurers are getting nervous about the possibility Britain may leave the European Union, fearing it would curb their ability to sell policies across the continent and jeopardise years of work on a common regulatory framework.

Britain's new Conservative government has committed to holding a referendum on EU membership by the end of 2017. The threat of a British exit, or "Brexit", has particularly alarmed the City of London (LSE: CIN.L - news) financial district, which fears a loss of Britain's clout in European and global markets.

The Association of British Insurers and International Underwriting Association have in the past week expressed their concerns. They echo those of Gerry Grimstone, chairman of Standard Life (LSE: SL.L - news) and TheCityUK, which promotes London as a financial marketplace.

British insurers, which had 50 billion pounds ($76.2 billion) in income in London in 2013, are primarily worried about their ability to sell across the 28-country bloc without setting up full offices or reporting to regulators in each country.

"The loss of those passporting rights could be a significant issue," said Catherine Thomas, analyst at insurance ratings agency A.M. Best, citing the cost should they be forced to establish EU-domiciled subsidiaries to sell there.

There are also worries about a loss of British influence over the creation of new rules to govern the amount of capital EU insurers will need to set aside to run their business, known as Solvency II, and which are still being thrashed out.

Most of those arguing for Brexit want Britain to remain in the European Economic Area, which includes Iceland, Liechtenstein and Norway as well as the EU countries.

The trade area would still have to comply with Solvency II.

"The main concern is that of being bound by EU rules without being able to influence them," Thomas said.

LLOYD'S LOSS

Despite concerns around passporting and the future rule-book for the industry, most individual insurance companies contacted by Reuters declined to comment or said it was still too soon to forge concrete plans to handle a possible EU exit.

While short on specific details, Standard Life said it "believed strongly in the Single Market" and would "take whatever action was necessary to protect the interests of our customers, shareholders, employees and other stakeholders".

Fellow industry heavyweight Legal and General, meanwhile, flagged Brexit as "one of the regulatory/economic/political risks we have identified", but said it would be "premature" to say it had contingency plans in place.

British support for staying in the EU has risen to 55 percent, up 9 percentage points from two years ago, according to a Pew Research Center survey published this week.

If passporting rights were denied to UK firms, Mark Nicholson, director of insurance at Standard & Poor's, said some would likely set up European subsidiaries in the transition period from the referendum to a full British exit.

Many, such as industry leaders Aviva (Other OTC: AIVAF - news) , Prudential , RSA and Standard Life have operations around the globe and would probably be able to adapt quite quickly.

For the Lloyd's of London insurance market, however, the issue is more stark, prompting the 300-year old institution to come out fighting, flagging the costs involved if its 96 syndicates had to set up multiple new offices to keep trading.

Inga Beale, Lloyd's chief executive, told a conference in Luxembourg last week that leaving Europe "would be bad for business," adding: "we think that open trade and being part of a bigger community is very important". $1 = 0.6558 pounds) (Editing by Simon Jessop and Keith Weir)