Growth prospects, capital positions and profits of UK life insurers will be dented in the event of a no-deal Brexit, according to a leading rating agency.
In a report for its clients, Moody's Investors Service opined that short to medium term prospects of sector players would be “damaged.”
While the agency’s current base case is still that the European Union and the UK will reach an agreement, Dominic Simpson, Senior Credit Officer at Moody's, says first of all, financial market volatility may erode capital and pressure investment income.
“Secondly, a hit to the UK economy may reduce revenue and earnings potential. However, Moody's anticipates that operational risk will be manageable in the event of a no-deal Brexit, as most UK life groups that operate in continental Europe do so via local subsidiaries.”
These will be able to continue operating even though their UK parents would lose their EU passporting rights. Furthermore, in 2018, most UK life insurers again increased their operating profit.
Moody's expects the sector to continue to benefit from rule changes giving savers more freedom to manage their retirement savings, as well as structural shifts such as pensions auto-enrolment, and the move from defined benefits to defined contribution schemes.
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