UK Re/Insurers - Have you considered what Brexit means for your ratings?

13 July 2017

Insurers have been busy trying to figure out what Brexit means for their business and the most recent consideration came when the Prudential Regulation Authority (PRA) announced that each insurer conducting cross-border business between the UK and European Union (EU) was required to submit a contingency plan by the 14 July 2017. 

To date, insurers have focused on understanding and formulating a response for their Executive Boards and to the PRA by focusing on where to go in the most efficient way possible, trying to keep disturbance to a minimum. As insurers firm up their Brexit structures, attention will turn to the broader business, operating and finance model impacts.

In parallel, the rating agencies, obliged to stay clear from steering or influencing companies in their management actions in any way or form, have been watching the situation closely. Most rating agencies have publicly announced that they do not expect Brexit to have an immediate impact on existing ratings and we also believe that this should not be an issue for the majority of rated entities. 

However, what about the prospective rating of your potentially newly created EU subsidiary?

There are a number of questions you should be asking yourself with regards to your future subsidiary rating:

  • Have you considered whether it would require a rating at all? And if yes, which rating agency?
  • How would you go about obtaining that rating? 
  • What level would that rating need to be to make commercial sense? 
  • Have you spoken to your business relationship contact at your rating agency/-ies to make sure you know what steps to take to obtain a new rating and how long it would take the analytical team to assign that new rating? 
  • Does that framework fit into your current step plan and if not, what can you do to accommodate for it?
  • What information do you need to submit in order to allow the rating agency to assign a new rating?

It is important to keep in mind that rating agencies do not automatically hand out the parent or group ratings to a newly created subsidiary. Also, there are important differences in group rating criteria among the different rating agencies. In most cases stringent explicit and / or implicit support mechanisms between the new subsidiary and the parent company or group will have to be put in place to ensure the rating can benefit from the strength of the established parent. Without these, given the limited size, lack of track record and potentially minimal amounts of capital in the subsidiary, a rating significantly lower than the parent or group, could potentially be assigned.

Jane Portas  | Partner | E: jane.portas@pwc.com |  T: +44 (0)20 7212 8379

Anna Bender  | Senior Manager | E: anna.bender@pwc.com |  T: +44 (0)7843 331370

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