Investors divided on how SII reforms may affect insurer credit quality

Written by Adam Cadle

02/02/2024

Investors are currently divided on the impact of post-Brexit Solvency II reforms on UK insurers’ credit quality, Fitch Ratings has said.

In an audience poll at Fitch’s recent Insurance Insights event in London attended by investors, issuers and other market participants, 30% thought the reforms would make insurers more attractive to credit investors, 16% thought the opposite and 54% saw no impact.

Fitch said it expects the reforms to lead insurers to gradually invest slightly more in illiquid assets. This could improve asset diversification and investment returns, but could also increase the credit risk in investment portfolios and liquidity risk, it said.

“We do not expect the reforms to make a material difference to insurers’ credit quality, sharing the view of just over half the poll respondents. Changes in insurers’ investment allocations are likely to be limited and gradual due to regulatory constraints and insurers’ generally prudent investment risk appetite, and we expect the credit positives and negatives to be broadly in balance,” Fitch added.

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