Fitch Ratings has warned about European market access for the London market, following June’s Brexit vote for the UK to leave the EU.
Brexit could lead to a loss of business for Lloyd's unless the UK government can negotiate passporting arrangements to maintain EEA access, Fitch suggested.
“We believe this could lead to business moving away from the Lloyd's platform,” warned the credit ratings agency.
In 2015 the EEA represented £2.9bn, or 11%, of the Lloyd's market’s gross written premium.
The ratings firm’s warning came within its “London Market Dashboard - 1H16 Results” report.
Pricing for London market insurers continued to fall in 2016’s first half, noted Fitch, particularly in the London market’s staple lines of marine, energy and property business.
“Some insurers have attempted to mitigate this by diversifying into specialty lines, where rates have held up better, but we believe this could lead to price falls in these lines as well,” warned Fitch.
Reserve releases continue to support earnings, the rating agency, for example benefitting the combined ratio of Hiscox by 13 percentage points for the first half of this year, although a reduced benefit from 17 points enhancement provided by reserves released in the same period of 2015.
“Fitch is monitoring the sustainability of reserve releases in the context of strong pricing competition,” said the rating agency.
“London market insurers reported slightly improved investment returns in 1H16 compared with 1H15, driven by gains on fixed-income investments as yields declined, particularly following the Leave outcome in the referendum on EU membership,” said Fitch.
“However, we do not expect such gains to contribute to returns on an ongoing basis, and we expect low yields to be a drag on profitability,” added the ratings firm.
Reactions editorial warned in August of the risk of creeping protectionism in European politics affecting re/insurance companies' market access in a post-Brexit EU.