AM Best: Brexit Could Impact On Insurers Results

June 26, 2016

According to A.M. Best, the financial market volatility from Brexit “could have a material impact on insurers’ half-year results and balance sheets.”

The UK referendum saw the British vote — by 51.9% — to sever the country’s membership in the European Union, with Britain set to be the first country to leave the EU since its formation.

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A statement from the ratings agency said, “A.M. Best does not expect to take rating actions in the near term as a direct consequence of the decision by United Kingdom [UK] voters to leave the European Union [EU]. In a referendum held on 23 June 2016, 51.9% voted to relinquish EU membership.

“The implications for the financial strength of insurers with regard to subsequent investment market volatility, currency fluctuations and increased economic uncertainty will be closely monitored.

“Also, as the terms of the exit are negotiated, A.M. Best will discuss with rated companies what prospective changes will mean for their competitive positions and ability to continue to access business in the UK and the EU.

“The decision has led to a sharp drop in sterling and global equity markets. A.M. Best notes that the financial market volatility could have a material impact on insurers’ half-year results and balance sheets, with most companies reporting their positions as at 30 June 2016.

“Solvency II’s market-consistent approach to valuing the economic balance sheet means that financial market volatility will be closely reflected in European insurers’ reported solvency capital ratios.

“A.M. Best will discuss the implications of this with rated entities, but will continue to incorporate a prospective view when assessing insurers’ financial strength.”

Meanwhile, Moody’s Investors Service has changed the outlook on the UK’s long term issuer and debt ratings to negative from stable. Both ratings are affirmed at Aa1.

Moody’s said, “The majority vote in favour of leaving the European Union in the referendum held on 23 June will herald a prolonged period of uncertainty for the UK, with negative implications for the country’s medium-term growth outlook.

“During the several years in which the UK will have to renegotiate its trade relations with the EU, Moody’s expects heightened uncertainty, diminished confidence and lower spending and investment to result in weaker growth.

“Over the longer term, should the UK not be able to secure a favourable alternative trade arrangement with the EU and other countries, the UK’s growth prospects would be materially weaker than currently expected.”

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