A.M. Best Comments That Ratings of UK Insurers Are Unchanged Following Downgrade of UK’s Government Bond Ratings

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.


LONDON — On 22 February 2013, a credit rating agency downgraded the domestic and foreign currency government bond ratings of the United Kingdom.

A.M. Best Europe – Rating Services Ltd. does not anticipate any impact on its ratings of insurers operating in the UK as a direct consequence of the sovereign downgrade. The rating action does highlight the difficult market conditions facing UK insurers. However, these conditions are already factored into individual A.M. Best ratings.

Economic growth in the UK is slow and is expected to remain so. This is curbing demand for coverage, with discretionary products, personal lines (including life business) and products dependent on trade volumes most affected. The uncertain economic outlook is also making it harder to predict claims trends, which means that reserving has become more difficult. This is a particular problem for long-tail liability business, which has also been subject to higher claims frequency.
The investment returns of UK non-life insurers, which tend to hold UK government or high-quality corporate bonds, remain weak and insurers are under pressure to improve underwriting performance. In the life sector, insurers have significantly shifted their focus from spread to fee-driven business, and interest guarantees have been drastically reduced.

Interest rates are at historically low levels, and the recent downgrade is not expected to lead to a material increase in yields on UK government bonds. Financial markets had already factored a possible downgrade into bond prices and demand from institutional investors for high-quality assets, as well as the potential for further quantitative easing, is expected to support the pricing of these securities.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe – Rating Services Limited Supplementary Disclosure.

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