It may be business as usual for some insurers, but at least three leading global firms expect the industry to take a major hit from UK’s decision to relinquish EU membership.
Ratings agency AM Best said insurers’ finances this year could be affected by the Brexit vote, which has already led to a sharp drop in sterling and global equity markets.
“AM Best notes that the financial market volatility could have a material impact on insurers’ half-year results and balance sheets,” the agency said.
However, AM Best does not expect to take rating actions in the near term as a direct consequence of the UK’s decision to leave the regional trading bloc.
Global consultancy firm Ernst and Young said the leave vote “has the potential to have a significant impact on insurance companies’ operations and the needs of their clients.”
The company said the biggest impacts could be felt in the non-life sector, where EU passporting rights and freedom of establishment and freedom to provide services are the basis for a significant proportion of the market.
EY also expects corporate structuring, capital tax and business flows for all types of insurer to be affected by Brexit. Personal lines, commercial lines, captive markets and closed book consolidators are all “vulnerable and should be remembered” as the government negotiates the UK’s exit from the EU.
The Brexit vote also presents the insurance industry with a “significant administrative burden,” according to EY.
“The need to reapply for licences, give clarity around cross border trades etc. are all time-consuming but incredibly important for the industry to function,” the firm said.
“The concern is that the admin burden might distract insurers from the day job.”
International law firm Kennedys echoed EY’s forecast, saying the insurance market is now faced with “significant business uncertainty” in the wake of the historic EU referendum last week.
In an earlier study, Kennedys found out that many insurers had not undertaken detailed contingency planning for Brexit. Industry experts were also concerned about how long it would take the UK to reach free trade agreements around the world.
“Larger global players envisaged a direct, negative effect on their businesses, while smaller domestic companies were worried more about the wider economic impact of Brexit,” the firm said.
There will be fears about the impact on insurers’ ability to recruit and retain EU talent, Kennedys also warned, as political focus is likely to shift to reducing the number of EU migrants coming to the UK.
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