Fitch Ratings has said a vote by the UK to leave the European Union (EU) would add to operational and regulatory complexity for UK insurers active in the EU, but should be manageable.
UK voters are set to decide whether Britain should remain in the European Union via a referendum on 23 June 2016.
The immediate impact of a Brexit on UK life insurers might be via their balance sheet exposure to potential extra volatility in financial markets, given their high asset leverage, according to Fitch Ratings.
What to watch
In its UK life insurance dashboard, Fitch Ratings pointed to three major issues to watch for the UK life insurance sector:
– Regulatory developments
– Annuity sales
– The EU referendum in June 2016
In terms of regulatory developments, Fitch said the UK life industry is facing intense regulatory scrutiny. For example, Fitch noted that the Financial Conduct Authority (FCA) has recently completed a review of life insurers’ treatment of long-standing customers, which has led to further investigations into a number of specific firms.
The FCA has also announced an investigation into potential mis-selling of annuities, which is due to conclude in Q4 2016.
As for annuity sales in the UK, Fitch said these stabilised in 2015, suggesting that the market may have reached a new equilibrium after a steep decline triggered by falling interest rates and the ending of compulsory annuitisation announced in Q1 2014.
Strong Solvency II positions confirmed
Fitch said all major UK life insurers published headline Solvency II ratios as part of their 2015 results announcements, confirming strong coverage of their Solvency II capital requirements in line with Fitch Ratings expectations.
The ratings agency said it does not consider the ratios directly comparable as they are calculated on different bases by different companies.
It said key differences include treatment of overseas business and the extent to which insurers are claiming matching adjustment credit on their annuity portfolios.
Fitch said Solvency II results will be more comparable in 2017 when fuller disclosure is introduced.