In Full: Insurers to withstand Brexit volatility
Rating agencies have agreed the impact of a UK exit from the European Union (EU) will be limited for European insurers, despite the credit implications for the broader economy...
On the day of the result (24 June), Standard & Poor's (S&P) said it viewed the insurance sector as the least exposed to a Brexit compared with the rest of the UK 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 rating agency said, noting the sector was also a very limited recipient of inward investment.
S&P said it did not anticipate the leave vote to lead to any rating actions on UK insurers.
The nature of any future trading relationship between the UK and the EU is yet to be established, but even in the absence of any trade agreements or passporting rights, UK insurers operating in the EU could continue their businesses largely uninterrupted with the appropriate planning, the firm said.
"The same would apply for EU insurers who currently trade in the UK through branches," it added.
Meanwhile, AM Best warned that any financial market volatility could have a material impact on insurers' half-year results and balance sheets.
Due to the market-consistent approach to valuing balance sheets under Solvency II, this volatility may also be reflected in solvency capital ratios, the rating agency said.
However, AM Best confirmed it does not anticipate any rating actions in the near term.
Moody's took a similar stance, arguing that prolonged or significant market volatility would weigh on solvency ratios. Overall, however, the impact on insurers should be limited, unless passporting is significantly disrupted, the firm added.
"For insurers, we do not expect changes to current insurance passporting rights to have profound implications for the insurance industry overall because most UK groups operate in continental Europe through subsidiaries, and vice versa for continental European insurers," Moody's said in a 24 June report.
On a macro level, rating agencies agreed a UK exit would deter investment in the economy, decrease official demand for sterling reserves and put the country's financial services sector at a competitive disadvantage compared with other global financial centres.
S&P pointed to a warning issued on 29 April that "the days for the UK's AAA sovereign rating would be numbered" in the event of a Brexit.
In its latest announcement, S&P warned that it could lower the UK's AAA sovereign 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".
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