UK insurers must consider EU exit: AM Best
Rating agency AM Best has warned UK-based insurers to monitor the potential consequences of the UK exiting or renegotiating its position within the European Union.
In a briefing, AM Best said that one consequence could see European competitors taking advantage of the uncertainties in the next few years to attract business away from UK insurers.
The rating agency expects companies with a large European presence to have various scenarios on their risk registers ahead of the UK General Election on May 7, 2015.
"Insurers should identify the potential consequences of operating without the EU financial services 'passporting' scheme," said Catherine Thomas, director, analytics.
Thomas added: "As the scheme allows a company authorised in one member state to conduct cross-border business without being required to apply for any additional authorisation or incurring further local operational costs, pulling out of the EU could result in the need for UK insurers to establish an EU-domiciled subsidiary to underwrite business there, with subsequent costs, back office operational requirements and resourcing implications.”
AM Best said that factors likely to influence its ratings on UK-based insurers would depend on the amount of business a company underwrites in the EU and its ability to continue to access this business.
The importance of a large insurer’s UK operations may diminish if the insurer chooses to restructure and establish an EU-domiciled subsidiary.
"In the event of an exit, risks would likely be mitigated to an extent as any withdrawal would be managed over a number of years to avoid disruption," added Yvette Essen, director, industry research – Europe & emerging markets, and author of the briefing. "Nevertheless, the viability of London as a key financial centre and the impact on the economy must also be considered in the event of a UK exit."
