Fitch does not expect immediate ratings changes post Brexit

Fitch Ratings does not expect the UK’s departure from the EU to have an immediate impact on ratings, Graham Coutts, senior director, insurance ratings at Fitch, said at the Fitch Ratings Reinsurance Briefing 2019.

“Brexit is clearly a big issue,” he said. “Our base case is we don’t think there will be any direct rating impact on day one of Brexit, so we are not expecting to change ratings immediately after Brexit.

“Some factors over time could have an impact and ratings could fall, particularly on the investment side if we saw a big devaluation of the pound, for example.

“Thinking of the reinsurance sector, it’s less of an issue reinsurers tend to have globally diverse portfolios; they are not really focused on one country,” Coutts explained.

“We do expect there will be some kind of agreement, particularly on the reinsurance side, to trade across borders. On the primary side I think it’s more of an issue, but for the reinsurance sector the impacts are more limited.”

Looking at the industry globally, Coutts noted a changing competitive landscape, with alternative capital having seen some challenges in the last year or two.

“It’s here to stay and as a result of that we are expecting a flatter underwriting time there is lots of capital in the market. We are not expecting to see big hard markets and then big dips business is going to be a lot flatter overall.”

Discussing ratings actions, Coutts said cat losses are always key. He said there would have to be big cat losses causing a decline in capital of 10 or 15 percent before there was any specific ratings action.

“If we saw another shift in the market if profitability fell below the cost of capital, there could be some negative outlooks and certainly a negative sector outlook.

“If some of this alternative capital did leave the space if there’s another year of cat losses and more trapped capital and people stopped investing in this market that could lead to quite a significant improvement to the market environment, and that could lead to some positivity, especially if we saw some significant rate improvements,” he concluded.