From £16.2 billion in February 2020 to £11.4 billion in May/June – that’s how the total liquidity resources of insurance intermediaries and brokers went down because of the coronavirus crisis, according to data published this morning by the Financial Conduct Authority (FCA).
The numbers are based on the COVID-19 financial resilience survey conducted by the watchdog as part of its monitoring of the impact of the resulting economic downturn on the solvency of firms it prudentially regulates.
Dual-regulated organisations such as retail banks, building societies, credit unions, life insurers, and general insurers were not within the poll’s scope as they are prudentially regulated by the Prudential Regulation Authority.
Meanwhile, aside from the insurance intermediaries and brokers category, the study also covered the sectors of investment management, payments and e-money, retail investments, retail lending, and wholesale financial markets.
In terms of available liquidity – which spans cash, committed facilities, and other high-quality liquid assets – the area of insurance intermediaries and brokers was among those that saw a decline, alongside payments and e-money as well as investment management. Their other three peers enjoyed an increase in liquidity.
“We are in an unprecedented – and rapidly evolving – situation,” stated FCA executive director of consumers and competition Sheldon Mills. “This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms. A market downturn driven by the pandemic risks significant numbers of firms failing.
“At end of October we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve. These are predominantly small- and medium-sized firms and approximately 30% have the potential to cause harm in failure.”
Mills said getting early visibility of potential financial distress will allow the regulator to intervene faster so that risks are managed and consumers are adequately protected. “Our role isn’t to prevent firms failing,” he asserted. “But where they do, we work to ensure this happens in an orderly way.”
In addition to liquidity resources, the poll also examined estimated cash needs and expected cash inflows, delayed payments to creditors, net income expectations, net profit or loss in the period, impact on business model, income in the last financial year, employee furloughs, and use of government support loan.
According to the FCA, 44% of the surveyed insurance intermediaries and brokers had furloughed staff and 19% had received a government-backed loan.
Meanwhile the regulator stressed that caution should be taken about using the survey findings to make predictions, as the poll is only one of four ways the FCA is monitoring businesses. It was also pointed out that the survey was conducted prior to the extension of the furlough scheme, developments in COVID-19 vaccines, and the announcement of new restrictions.