Global Reinsurance speaks with the credit rating agency’s lead insurance analyst Linas Grigaliunas
In the wake of Dagong Global’s decision not to downgrade the UK’s sovereign rating – a show of China’s interest in investing in post-Brexit England – Global Reinsurance spoke with Dagong Europe to get a sense of the feeling on the ground. According to Dagong Europe director of financial institutions and lead insurance analyst Linas Grigaliunas, (re)insurance industry in continental Europe will be about to weather the storm, despite the uncertainty.
What are the implications of Brexit that have been felt on the continent?
So far, the biggest impact to continental insurers from Brexit is on the asset side, in particular the drop in the equity market and increased volatility, in our view. The fixed income part of their investment portfolios is in general not concentrated in UK sovereign debt and sovereign exposures are fairly diversified across European countries.
Will this impact capital or solvency?
We do not expect material deterioration of capital and solvency ratios as the majority of European insurers maintain conservative investment mix and low exposure to equities. While insurers across Europe saw their own shares tumbling, the largest fall we observed is in the southern countries. We do not see material deterioration in industry fundamentals and believe it is part of market turbulence driven by negative sentiment.
Where will European insurers feel the impact of Brexit?
We do not expect any immediate impact to business volumes. In general, we expect to see business as usual in continental Europe. The most affected in our view could be specialty lines and foreign players accessing single market via Britain.
Will pressures present themselves in the long-term?
Although we see insurance industry in EU as highly resilient, in the long-term, Brexit would bring a lot of uncertainty and mainly negative implications. It could force companies to change their legal, organisational and operational structures, business strategies and even business models. This would lead to increased costs and lower profitability. Indirectly it can weaken British and European economies, which would have negative impact to business growth and put further pressure on investments and solvency ratios.
Are there any opportunities emerging?
Every challenge presents new opportunities, however in our view, Brexit presents overall more significant direct and indirect challenges, distracting management boards from their already-full agendas. On the positive side, risk management in particular will gain importance and management boards will have to be more proactive and flexible. Companies and individuals will have to pay more attention in accessing and preparing even for the highly unlikely stress scenarios. This in turn can help develop the insurance industry and provide new products to companies and individuals against various risks.
Will there possibly be a shift away from London as a result of Brexit?
We think that there might be some political push to shift and develop some specially lines from UK to the continent and possibly encourage some of European capitals to become continental insurance hub to offset London’s dominance.