“As a last resort, if the only alternative to no deal is some form of short delay to Brexit, then delay we should.”
This was the recommendation of Association of British Insurers (ABI) director general Huw Evans when he addressed the attendees of the trade body’s annual dinner last night. The statement comes ahead of today’s ABI Annual Conference 2019 in London.
“A no-deal outcome would be an unforgivable act of economic and social self-harm,” asserted Evans. “It would mean leaving the world’s single biggest trading block overnight with nothing but WTO (World Trade Organisation) rules to replace it. This would be wholly inadequate and unprecedented.”
The ABI official pointed out that the European Union’s 20 largest trading partners all have deeper agreements in place and do not trade with the EU on WTO terms alone.
He added: “The WTO framework itself is designed to provide a mechanism for states to resolve trade disputes – it is not designed to be a safety net for the world’s fifth largest economy leaving the world’s biggest trading block. Nor do its rules guarantee market access for the services which make up four fifths of the UK economy.
“This matters because the EU is – by a very long distance – the largest export market for the UK insurance and long-term savings industry.”
The UK, the association stressed, is currently Europe’s largest insurance market which employs more than 300,000 people nationwide.
“As an industry we have done everything possible to prepare for no deal, including transferring an estimated 29 million insurance contracts and the establishment of nearly 40 EU subsidiaries and branches to minimise disruption to customers,” noted Evans.
“But we still believe very strongly that a conscious decision to opt for no deal would be an act of economic recklessness our great country would live to regret with WTO rules offering little to no protection against the consequences.”
Meanwhile, in terms of insurer ratings, it doesn’t look all doom and gloom – at least not right away – if you ask Fitch Ratings.
“The Brexit-driven Rating Watch Negative (RWN) on the UK does not imply an immediate threat to the ratings of UK insurance companies,” noted the credit rating agency. “A one-notch sovereign downgrade would not, in itself, trigger insurer downgrades, and there is no automatic sovereign cap under our insurance rating criteria.
“However, some of the highest insurer ratings could come under pressure if an adverse Brexit scenario leads to widespread downgrades of the corporate debt that insurance companies hold to back their liabilities, as this would weaken their capital adequacy.”
All with Insurer Financial Strength (IFS) ratings of AA-, the highest-rated insurers in the UK are Aviva, Legal & General, Lloyd’s of London, M&G Prudential, and Scottish Widows. Fitch Ratings said the outlooks are stable with the exception of Lloyd’s, whose negative outlook reflects underwriting profits pressure brought about by market dynamics not related to Brexit.
“We believe the impact of a no-deal Brexit on UK insurers’ operations in the EU would be limited, despite the loss of passporting arrangements,” it added, citing firms’ readiness. “Insurers are obtaining new business licences where required, and transferring cross-border portfolios to EU subsidiaries or disposing of them.
“UK life insurers with significant EU business, notably Aviva, operate through long-established local subsidiaries, which do not rely on passporting. Lloyd’s of London has set up a Brussels subsidiary to handle all EU business after Brexit.”
