Looser EU-UK trade agreement would be credit negative but ‘manageable’ for UK insurers – Moody’s

Written by Adam Cadle

03/02/2020

A looser EU-UK trade agreement would be credit negative but "manageable" for UK insurers, Moody’s has said, however a ‘no-deal’ outcome would be more severe, especially for UK life insurers.

In an FAQ on the impact of Brexit on insurers, Moody’s said “slower economic growth would hold back discretionary insurance purchases, but the impact on the sector’s credit strength would likely be limited overall”.

Moody’s said a ‘no-deal’ outcome would lead to slower economic growth likely exacerbated by financial market volatility.

“This outcome would likely lead to more severe trade disruption and would therefore have a more severely negative impact on both the UK and EU economies. The likely consequent contraction in insurers’ premium income and underwriting profit would be correspondingly greater."

Moody’s added that the UK life sector would be more affected due to its high asset leverage which would be affected by market volatility.

“This would push up life insurers’ capital requirements while reducing their asset values, a double negative for the sector’s Solvency II capital position. UK life insurers’ Solvency II rates at YE18 and H119 remained comfortably above 100%, giving them a robust cushion to absorb any short-lived market volatility.”

On 31 January 2020, the UK left the EU and entered an 11-month transition period during which it aims to negotiate a new long-term economic relationship with the bloc. EU regulations continue to apply in the UK up until the end of the transition on 31 December 2020.

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