An economic slump caused by Brexit and the cost implications of continuing to access business in the European Union are likely to weigh on UK insurers, ratings agency A.M. Best has warned.
In a new report, the agency said the ability to continue to access EU business following a loss of passporting rights is a key issue that could impact the UK insurance industry.
Catherine Thomas, senior director of analytics at A.M. Best, said insurance companies will have to set up operations elsewhere in the EU, a move that entails expenses.
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“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,” she said. “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,” Thomas added.
Uncertainty in the UK economy following the Brexit vote could also have a negative impact on domestic insurers’ premium volumes, according to A.M. Best. The agency raised concerns that an economic downturn can impact capital adequacy if widespread corporate downgrades affect the credit quality of insurers’ investment portfolios.
“A.M. Best does not expect to take rating actions as a direct consequence of Brexit,” Thomas said. “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.”
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