Low interest rates bigger worry for insurers than no-deal Brexit: S&P

Prolonged lower interest are rates a bigger worry than Brexit for insurers.

That’s the view of S&P Global Ratings. Dennis Sugrue, senior director, insurance sector lead at S&P, told Intelligent Insurer that he had identified low rates as a “key risk”, and that it had been a major worry for the sector for most of the last decade.

“We’ve done a lot of work around low interest rates to see where the pinch point is,” he said.

Sugrue said that insurers in Continental Europe would be more affected than those in the UK, because of their product structure, with mainland European insurers more likely to have guaranteed products than those in the UK. Low rates were also likely to impact earnings forecasts.

He said insurers were now taking more risk in their investments to boost yields, due to the low yield from so many bonds.

In contrast, S&P has taken the view that Brexit may not be too much of an issue for UK insurers. The agency said that UK insurers will not be as badly affected as some other sectors in terms of ratings downgrades in the event of a no-deal Brexit.

The most significant credit implications resulting from a no-deal Brexit for U.K. insurers are likely to come from the short-term and long-term disruptions to the country's economy and financial markets, said S&P.

It added: “However, we believe the initial impact on U.K. insurers' ratings will be muted, with outlook revisions, rather than widespread downgrades, more likely to occur if the downside economic and market scenarios occur.”

Sugrue said that one reason the sector would be affected less is that “you don’t have the same supply chain issues”.

There are not the same issues at the borders, and worries about continuity of business, as with manufacturing companies, he said. There could be increased costs in the case of insurance of foreign cars, where parts might be more expensive to import, but the overall effect was not likely to be substantial.

He also said most insurers had set up operations in one of the other 27 EU countries to continue to service policyholders and write business there. “They’ve been preparing for the worst case since the referendum,” Sugrue said.

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