AM Best warns UK insurers of higher costs and lower premium volumes due to Brexit
Cost implications of continuing to access EU business and any downturn in the UK economy resulting from Brexit are likely to weigh on insurers, according to an AM Best report titled “Brexit Uncertainties Weigh on UK Insurers but Rated Entities Able to Withstand Pressure.”
In a long awaited speech on Tuesday January 17, UK’s Prime Minister Theresa May said that the UK "cannot possibly" remain within the European single market.
Catherine Thomas, senior director, analytics, said: “The ability to continue to conduct cross-border business throughout the EU is principally a concern for Lloyd’s, the London market and other commercial insurers. To continue to underwrite EU business, these companies are likely to need to establish an EU-domiciled subsidiary, if they do not already have one. This would have associated costs, operational requirements and resourcing implications.”
The UK’s vote to leave the EU has resulted in considerable uncertainty regarding the UK’s economy, which could have a negative impact on domestic insurers’ premium volumes. There are concerns that an economic downturn could impact capital adequacy if widespread corporate downgrades affect the credit quality of UK insurers’ investment portfolios.
Thomas added: “AM Best does not expect to take rating actions as a direct consequence of Brexit. However, increased economic and regulatory uncertainty, as well as the potential for higher barriers to trade, overall, is a credit negative for the UK insurance industry. As the terms of the exit are negotiated, AM Best will continue to discuss with rated companies what prospective changes will mean for their competitive positions and ability to continue to access business in the United Kingdom and the EU. Any impact on revenue or profitability will be taken into account in our assessment of a company’s profile and operating performance.”
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