24 June 2016 Insurance

UK financial services at competitive disadvantage but insurers less vulnerable: S&P

S&P Global Ratings has reiterated its view that the UK leaving the EU will deter investment in the economy, decrease official demand for sterling reserves, and put the UK's financial services sector at a competitive disadvantage compared with other global financial centers.

“We stated that a vote to leave could affect growth performance, external funding, and the public balance sheet, adding that – depending on the circumstances and consequences of a leave vote - we could lower the rating by more than one notch if we believed that the UK's institutional strength and ability to formulate policy conducive to sustainable growth were negatively affected,” the rating agency said.

However, the rating agency has also said the insurance sector is less vulnerable to these pressures compared with other financial services sectors and the leave vote is not expected to lead to rating actions on UK insurers as a result.

“We see the insurance sector as less exposed to the leave vote than the rest of the financial sector. While representing about one-third of the UK's very substantial financial services net export surplus, the insurance sector is far more reliant on trade with non-EU countries - especially the US.

“The sector is also a very limited recipient of inward investment. The nature of any future trading relationship between the UK and the EU is yet to be established. However, even in the absence of any trade agreements or passporting rights, we believe that UK insurers operating in the EU could, through appropriate planning, continue their businesses largely uninterrupted.

“The same would apply for EU insurers who currently trade in the UK through branches. The period of uncertainty while treaties or other arrangements are negotiated between the UK and the EU could weigh on insurers' investment returns and possibly on the rate of future economic growth. However, we do not now believe that these potential issues are likely to lead to immediate rating actions on insurers.”

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