No-Deal Brexit Risks Could Cloud The Broadly Stable ... · U.K. insurers' business risk profiles to...

No-Deal Brexit Risks Could Cloud The Broadly StableOutlook For U.K. InsurersJune 28, 2019

Key Takeaways

- A no-deal Brexit could be a key risk for ratings on U.K. insurers because it may haveimportant short- and long-term implications for the country's economy, financialmarkets, and insurance industry.

- Other than the risks from a no-deal Brexit, we see broadly stable trends for the U.K.insurance industry. Most U.K. insurers have ratings in the 'A' category and stableoutlooks. In addition, their 2018 year-end results were largely in line with our forecasts.

- Capital adequacy is also a strength for the industry and sufficient to weather theimmediate, short-term economic disruption or weakening of balance sheets that apotential no-deal Brexit could trigger.

S&P Global Ratings considers the creditworthiness of the U.K. insurance market to be stable,based on the characteristics of the 15 U.K.-based groups we rate. Most are in the 'A' category andhave stable outlooks. We assign a negative outlook to just one group, while one group has apositive outlook.

Our base-case remains that the U.K. will not leave the EU without a deal. In our view, U.K. insurersare well-positioned to weather short-term Brexit-related uncertainties in 2019.

That said, a no-deal Brexit outcome would have important long- and short-term implications forthe U.K. economy, through its impact on income levels and growth prospects, governmentfinances, external financing prospects, and financial markets.

A no-deal Brexit would also weigh on our view of the U.K. insurance industry and country risk,which could affect our view of U.K. insurers' business risk profiles. It could also have a negativeimpact on our view of U.K. insurers' financial risk profile. For example, it could heighten sovereignrisk, by dampening the economy's near- and medium-term growth prospects. We could alsoimpose additional capital requirements in our capital model because of the potential lower creditquality of insurers' bond portfolios. Other effects could include more equity volatility, increasedcollateral requirements, or reduced liquidity.

We anticipate that outlook revisions, rather than widespread downgrades, would be more likely tooccur within the U.K. insurance sector in the event of a no-deal Brexit. Specifically, we see a

No-Deal Brexit Risks Could Cloud The Broadly StableOutlook For U.K. InsurersJune 28, 2019

PRIMARY CREDIT ANALYSTS

Tatiana Grineva

London

(44) 20-7176-7061

[email protected]

David J Masters

London

(44) 20-7176-7047

[email protected]

RESEARCH CONTRIBUTORS

Ruchika Agrawal

Mumbai

[email protected]

Carolina Coelho

London

[email protected]

ADDITIONAL CONTACT

Insurance Ratings Europe

[email protected]

www.spglobal.com/ratingsdirect June 28, 2019 1

mailto: [email protected]










no-deal Brexit potentially affecting ratings on insurers in three key ways:

- First, if we lowered the long-term U.K. sovereign rating then we would review whether theratings on Prudential PLC and Legal & General Group PLC were resilient to our sovereign stressscenario.

- Second, we estimate that the adverse macroeconomic and financial market impact of a no-dealBrexit could put downward pressure on the ratings of four U.K. insurance groups, absent anymitigating actions, although this could take some time to play out. We continue to engage withour rated insurers to ascertain the level of mitigating management actions they could take insuch a scenario. This includes, but is not limited to, actions such as asset derisking, additionalreinsurance purchases, etc.

- Third, the financial implications of operational challenges could have negative implications forratings on U.K. and EU insurers. These would include additional costs for U.K. insurers settingup operating subsidiaries in the EU, or vice versa for EU insurers operating in the U.K.

Chart 1 Chart 2

Credit Trends

Other than the risks from a no-deal Brexit, we see broadly stable trends for the U.K. insuranceindustry.

In our base-case scenario, in which the U.K. does not leave the EU without a deal, we do not expectU.K. insurers' business risk profiles to change much in 2019-2020 (see our peer review analysis inthe appendix). The U.K. is a mature and developed insurance market--change would likely stemfrom major merger and acquisition (M&A) activity or immediate disruptors.

The U.K. life market will remain largely stable, with low industry risk

The U.K. life market is the largest of the European insurance markets by gross premium income.Like the French and German life insurance markets, we consider it is exposed to an intermediate


No-Deal Brexit Risks Could Cloud The Broadly Stable Outlook For U.K. Insurers

level of industry risk (see "Insurance Industry And Country Risk Assessment: U.K. Life," publishedon Feb. 6, 2018). However, its overall industry and country risk is low, making it one of very fewmarkets that we assess at this level (the others are the U.S., France, Switzerland, and Australia).Canada is the only life sector that we assess as being exposed to very low risk.

Industry risk is higher in the U.K.'s property/casualty market

We assess overall industry and country risk for the U.K. property/casualty (P/C) insurance sectoras intermediate. Our assessment, which covers both personal and commercial lines, reflects ourview of the low country risk and moderate industry risk to which this sector is exposed (see"Insurance Industry And Country Risk Assessment: U.K. Property/Casualty," published on April 9,2018). The assessment is comparable with several other developed P/C markets, including theU.S., Japan, and the Netherlands (see chart 3).

Chart 3

Profitability still flat in 2019

Profitability in the U.K. market in 2018 was suppressed by low interest rates, strong competition,and Brexit uncertainty. However, the operating environment is unlikely to materially improve foreither life or P/C players in 2019 as Brexit uncertainty remains. The lack of organic growth



opportunities and competition are also unlikely to reverse in 2019. We therefore expect 2019profitability levels will be in line with 2018.

Growth prospects stronger for life than for P/C

The mature U.K. life insurance market still has good prospects for growth, particularly in the bulkannuities segment. The wider annuity market has seen numerous political reforms and regulatorychanges in recent years, which created both significant distortions and opportunities for strategicrepositioning in the annuity market.

We forecast growth in net premium income in the life and annuity segment (see chart 4), in linewith our U.K. housing market price change forecasts. In our view, the demand for term-lifeinsurance products strongly correlates with demand for new mortgages, while demand for savingsand investment products correlates more closely with GDP growth and the aging population. Weanticipate that the income protection segment will grow in line with the level of inflation in2019-2020.

Chart 4

Automatic enrolment (AE) supported growth in the individual pension segment in both 2017 and2018. We anticipate that growth will likely slow down from 2019, because AE is no longerexpanding provision. AE was applied in phases to U.K. companies, starting with the largestemployers in 2012. All employers were required to adopt it by 2018, after which the requiredcontribution rates started to rise until April 2019.



Demand from pension plans' trustees and sponsors for the ability to transfer pension riskcontinues to grow at a record pace. As a result, we expect the pension buy-in and buy-out marketto see the highest growth of the insurance life subsectors in 2019-2020 (see chart 5) and demandis likely to remain as strong in 2019 as it was in 2018 (see chart 6).

Chart 5

In our view, the bulk annuity market will represent the largest growth opportunities for U.K. lifeinsurers in 2019, driving new business growth. Premium growth was relatively static in 2018 atrated entities that did not actively participate in the bulk annuities market (see charts 6, 7, and 8).



Chart 6

Chart 7 Chart 8

P/C premium levels are expected to increase marginally in 2019

Motor insurance is the largest single line of business in the U.K. P/C market and accounts forabout one-third of overall premium income. We expect that a decline in motor rates will be



somewhat moderated by motor reserve releases and more generally by the stable home insuranceline.

Being mature and highly developed, the U.K. P/C market is unlikely to grow substantially in 2019.P/C gross premiums as a proportion of GDP have been stable at about 3% since 2008. Based onthe universe of rated insurers, we expect growth of about 3%-4% in the U.K. P/C insurance marketin 2019, with combined ratios of about 100% as premium reductions continue, and return onequity and return on revenue at about 8%. We anticipate that reforms like Civil Liability Bill(regarding whiplash claims and the personal injury discount rate) will benefit the sector in themedium term.

Chart 9

All insurers in the U.K. are actively pursuing cost reduction programs

Cost-saving measures will be a priority for all insurers for 2019. These will include reducing staff,outsourcing, and using or testing artificial intelligence capabilities or robotic equipment. Thesemeasures will enable insurers to optimize marketing, reduce fraudulent claims, and improveprocess efficiencies in the coming few years and defend their market share.

In our view, the cost pressure, combined with the need for technological innovation and the searchfor synergies and economies of scale, is driving M&A in the U.K. insurance market (see table 1).



Table 1

Mergers And Acquisitions In The U.K. Insurance Market

Dealtype

Announcedate

Completion/terminationdate Target name

Acquirername Seller name

Announcedtotal value

(mil. £)Dealstatus

Acquirercountry

Targetcountry

M&A 01/05/2019 31/05/2019 Rl CorporatePension ServicesLtd.

XPSPensionsGroup PLC

RoyalLondonMutualInsuranceSocietyLtd./The

4.8 Pending U.K. U.K.

M&A 01/05/2019 Home insurancebusiness

AllianzInsurancePLC

Legal &GeneralGroup PLC

N/A Proposed Germany U.K.

INV 19/03/2019 19/03/2019 Archipelago RiskServices Ltd.

ArchInsuranceUK Ltd.

N/A Completed U.K. U.K.

M&A 13/03/2019 Beneficial LifeInsuranceCameroon PLC

PrudentialPLC

N/A Pending U.K. Cameroon

M&A 04/03/2019 Syncora HoldingsLtd.

N/A 279.8 Proposed BritishVirginIslands

U.S.

INV 29/01/2019 05/02/2019 CoverHound Inc. Chubb Ltd,Hiscox Ltd.,MS&ADInsuranceGroupHoldingsInc., AflacCorporateVentures LLC

44.2 Completed U.S.,U.K.,Japan,U.S.

U.S.

M&A 21/01/2019 21/01/2019 Robertson LowInsurances Ltd.

Aston ScottGroup Ltd.


M&A 18/01/2019 18/07/2019 CIS GeneralInsurance Ltd.

MarkerstudyLtd.

Co-OperativeGroup Ltd


M&A 04/01/2019 Swiss ReReAssure Ltd.

RothesayHoldco UKLtd.

Swiss Re AG 3,457.5 Proposed U.K. Switzerland

M&A 31/12/2018 Al AhliaInsurance Co.SAOC

Gulf UnionCooperativeInsuranceCo.

RSAInsuranceGroup PLC

27.1 Pending SaudiArabia

U.K.

M&A 12/12/2018 GeneralInsuranceOperations/Legal& General Group

AllianzHoldings PLC

Legal &GeneralGroup PLC

350.0 Proposed U.K. U.K.

M&A 11/12/2018 11/12/2018 Member 54532L HeliosUnderwritingPLC

Society ofLloyd's

9.5 Completed U.K. U.K.

M&A 11/12/2018 11/12/2018 Future Proof Ltd. St James'sPlace PLC


M&A 10/12/2018 10/12/2018 Newell PalmerLtd.

Ascot LloydLtd




Table 1

Mergers And Acquisitions In The U.K. Insurance Market (cont.)

Dealtype

Announcedate

Completion/terminationdate Target name

Acquirername Seller name

Announcedtotal value

(mil. £)Dealstatus

Acquirercountry

Targetcountry

M&A 21/11/2018 31/03/2019 Neos VenturesLtd.

AvivaVentures

N/A Pending U.K. U.K.

M&A 05/11/2018 05/11/2018 Royal LondonCustody ServicesCI Ltd., RoyalLondon AssetManagement CILtd.

RavenscroftHoldings Ltd.

RoyalLondonMutualInsuranceSocietyLtd/The

N/A Completed U.K. U.K., U.K.

INV 01/11/2018 01/11/2018 compare.comInsuranceAgency LLC

PrivateInvestor,AdmiralGroup PLC

19.2 Completed U.K.,U.K.

U.K.

INV 30/10/2018 30/10/2018 NexusUnderwritingManagementLtd.

BP Marsh &Partners PLC

2.5 Completed U.K. U.K.

M&A 25/10/2018 31/12/2019 Australia & NewZealand lifeinsurance unit

ResolutionLife GroupHoldings LP

AMP Ltd 1,829.8 Pending U.K. Australia

M&A 03/10/2018 03/10/2018 PrestigeInsuranceHoldings Ltd.

Capital ZPartnersManagementLLC

N/A Completed U.S. U.K.

M&A 28/09/2018 SwintonHoldings Ltd.

ArdonaghGroupLtd./The

COVEAGroupe SAS


M&A 14/08/2018 19/12/2018 esure Group PLC Bain CapitalPrivateEquity LP

1,173.5 Completed U.S. U.K.

INV 19/06/2018 PensionInsurance CorpPLC

Abu DhabiInvestmentAuthority

JC Flowers &Co LLC

N/A Pending U.A.E. U.K.

M&A 15/06/2018 31/12/2019 Equitable LifeAssuranceSociety/The

LCCG UK Ltd. 1,800.0 Pending U.K. U.K.

Source: Bloomberg. M&A--Mergers and acquisitions.

We expect the number of authorized insurers operating in the U.K. to fall further (see chart 10).Larger players will acquire smaller ones to achieve scale, and some smaller players may find thechallenging competitive environment and additional regulatory requirements make it too difficultto remain in the market. The market is therefore likely to become more concentrated. So far thisyear, we've seen Allianz acquiring Liverpool Victoria's and Legal & General's P/C portfolios. Wethink M&A activity will continue through portfolio transfers, acquisitions of fintech companies,etc.



Chart 10

Bolt-on M&A or disposals mostly have a neutral effect on our assessments of the business riskprofiles of rated insurers. Most such transactions add more of the same or streamline activities tocore business--this would not benefit our assessment of competitive positions and business riskprofiles.

That said, if rated issuers diversify or acquire companies outside the U.K. insurance market, ormove into complementary industries within the U.K., it could have a positive or negative effect onour view of business risk. For example, some complementary industries, such as assetmanagement, could make a meaningful contribution to a group's total EBITDA, which could affectratings.

Financial risk profiles will remain relatively stable in 2019, as performance islikely to echo that of 2018

Capitalization remains a strength for the U.K. insurance industry (see charts 11-14). Overall,capital redundancy stands at about 20% at the 'A' confidence level and at 50% at the 'BBB'confidence level. We consider this sufficient to weather temporary potential economic disruptionor weakening balance sheets immediately after Brexit in 2019. Our assessments are based oncapital models as of Dec. 31, 2017, and projections for 2018-2020.



Chart 11 Chart 12 Chart 13

Chart 14

That said, we see a marked difference between the life and P/C sectors. As of Dec. 31, 2017, ourcapital adequacy assessment, which uses our risk-based capital model, suggests an overallaggregated capital redundancy of 41% at the 'A' confidence level for life players, but a deficiencyof 3% for P/C players. This is consistent with the higher average rating on the life insurers we rate,compared with P/C players. Participants in life insurance, which is a longer-tail business, are alsoexpected to hold higher levels of capital.



Given that we anticipate that life insurers will continue to participate in a growing bulk annuitymarket, this level of redundancy could reduce. Recent longevity trends may make this line ofbusiness more attractive to insurers. However, if existing players in this segment are to keepabsorbing new transactions while maintaining a healthy level of capital and capital capacity, theywill need to use longevity risk transfer mechanisms. Insurers are dependent on the continuedavailability of longevity reinsurance capacity, longevity swaps, and other risk transfer solutionsand exposed to the risk of a sudden drop in longevity risk transfer capacity.

We also have to bear in mind that insurers in search of higher yield on assets backing bulk annuitytransactions may invest in long-term infrastructure debt or equity release mortgages that are lessliquid. This strategy could increase capital charges in our model and increase liquidity risk forrated insurers.

For P/C players, we forecast stabilization in underwriting profits, with combined ratios at or below100%, which will support organic capital growth and lead to improvement in capital redundancyby 2020 at the 'A' level benchmark.

We anticipate that, for both life and P/C players, the operating performance in 2019-2020 willbenefit from recent cost-cutting, investment in new technology and updating of aging IT systems,and the adaptation of business models to customer demands and needs.

M&A may also lead to some depletion of capital, higher leverage, lower fixed-charge coverage,reduced financial flexibility, and a weaker overall financial risk profile.

Appendix: Peer Review Analysis

Table 2

Key Metric Trends At A Glance

Reported performance for 2018 versus S&P Global Ratings' expectations for 2018 and 2019

(Mil. €) 2019f 2018f2018 reported and S&P

Global Ratings data2017 S&P Global

Ratings data

Aviva Group

Gross premium written (mil.£)

>27,000 >27,000 28,659 27,606

Net income (mil. £) >1,500 >1,500 1,687 1,646

Net combined ratio non-life(%)

95-97 95-97 96.6 96.6

EBITDA fixed chargecoverage (x)

>5.0 >5.0 N/A 6.4

Financial leverage (%) <30 <30 N/A 28.8

S&P Global Ratings capitaladequacy

Very strong Very strong N/A Extremely strong

Ecclesiastical Group

Net premium written (mil.£)

240-250 230-240 219 213


92-94 91-93 86.4 87.9

EBITDA Fixed chargecoverage (x)

4-5 4-5 N/A 3.6



Table 2

Key Metric Trends At A Glance (cont.)




Ratings data

Return on revenue (%) 20-22 21-23 N/A 19.5

Return on shareholders'equity (%)

7-9 8-10 N/A 12.3


Extremely strong Extremely strong N/A Extremely strong

Flood Re Group


~37 32 32 28

Main levy income (mil. £) 180 180 180 180

Net income (mil. £) 80-90 110 109 104



Hiscox Group

Gross premium written (mil.$)

~4,150 ~ 3,000 3778.3 3,286

Net income (mil. $) ~350 >200 128 33.9


87-90 88-92 94.9 99.3


>10 >12 6.1 2.2

Financial leverage (%) ~25 ~13 25.8 14.3

Return on revenue (%) >14 11-13 8.9 1.7


>14 11-13 5.5 1.7


Moderatelystrong

Moderatelystrong

Very strong Extremely strong

Legal & General Group


>7,000 >7,000 13,253 7,932

Net income (mil. £) >1,500 >1,500 1,808 1,902

Life: PVNBP new businessmargin (%)

>8.0 >8.0 8.0 8.9


>8.0 >8.0 10.4

Financial leverage (%) <25.0 <25.0 N/A


>15 >15 22.3 25.00


Very strong Very strong Very strong Very strong



Table 2





Ratings data

Liverpool Victoria Group

Life: PVNBP new businessmargin (%)

~2 ~2 N/A 1.8


<97.0 <97.0 92.00 91.7


<4.0 <4.0 N/A 6.9

Financial risk profile Upper adequate Upper adequate N/A Upper adequate

Lloyd's


34,000 >35,000 35,527 33,591

Net income (mil. £) ~1,000 2,000 (1,001) (2,001)


97-100 95 104.5 114


>30 >30 (12.1) (41.6)

Financial leverage (%) <5 <5 2.8 2.9

Prudential Assurance Co. Ltd.

Gross premium (mil. £) >13,000 >12,000 13,002 13,077

Net income (mil. £) ~1,800 >1,600 1,229 2,426


>6 N/A N/A N/A

Financial leverage (%) ~20 N/A N/A N/A


>12 >12 N/A N/A



RSA Group


~6,300 ~6,700 6,470 6,678


94-96 93.0-95.0 98.3 96.3


~10 >8.0 7.9 4.4

Return on revenue (%) ~10 6.0-8.0 8.3 7.8


~10 >9.0 8.9 8.04


Strong Moderatelystrong

Moderately strong Moderately strong



Table 2





Ratings data

Royal London Mutual Group

Gross premium earned (mil.£)

>1,300 >1,300 1,171 1,239

Net income (mil. £) 100-150 100-150 (48) 352

Life new business margin(%)

~2 ~2 2.4

Total new business Margin(%)

~2.6 ~2.4 2.8


>4 >4 N/A 12.6

St James's Place Group

Net inflows (mil. £) 9,000-11,000 8,000-10,000 10,300 9,500

Life: new business margin(%)

>4.0 >4.0 4.5 4.4


>8.0 >8.0 N/A >8

Financial leverage (%) <20 <20 N/A ~6

Scottish Equitable

Net income (mil. £) 30-50 30-50 N/A 34.4


2-4 2-4 N/A 2.2



Scottish Widows Group


7,600-7,800 7,400-7,600 8,794 7,358


7,400-7,600 7,200-7,400 8,523 7,191

Net income (mil. £) >900 800-500 389 899


>10 >10 N/A 15.2

Financial leverage (%) ~20 ~20 N/A 20.1


18-20 18-20 N/A 16.2

Return on assets (%) 0.5-1.0 0.5-1.0 N/A 0.9

Total shareholders' equity 4,400-4,600 4,100-4,400 3,388 4,753





Table 2





Ratings data

Direct Line Group


~3,300 ~3,300 3,212 3,392

Net income (mil. £) >380 >380 474 434


88-92 88-92 89.2 86.4


~12 >15 13.6 6.81

Financial leverage (%) ~25 25 25.1 20.86

Return on revenue (%) >15 >15 18 18.55

Return on equity (%) >15 >15 15.8 15.6


Very strong Very strong Very strong Very strong

Unum Group (U.K. operations only)

Net income (mil. £) >60 >60 68

Net loss ratio (%) ~73 ~73 74.4

Return on Equity (%) >10 >10 12.5


Strong Strong N/A Strong

f--Forecast. H--Half. N/A--Not applicable. Q--Quarter.

Table 3

Peer Group 1: U.K. Life Insurance Peers With Strongest FSRs Without Support

Company NameLegal & General GroupPLC (GCP) Aviva Group

Prudential AssuranceCo. Ltd

Scottish WidowsLtd.

Sector Life insurance Life insurance Life insurance Life insurance

Financial strength rating AA-/Stable A+/Positive A+/Stable A/Stable

Holding company rating A/Stable A-/Positive N/A N/A

Gross annual premiums (mil.£)

7,932.04 27,606.02 10,290.00 7,358.00

Total assets (mil. £) 483,292.66 442,684.71 197,600.00 147,307.15

Business risk profile Very strong Very strong Very strong Strong

IICRA score Low risk Low risk Low risk Low risk

Competitive positionscore

Very strong Very strong Very strong Strong

Financial risk profile score Strong Strong Strong Strong

Capital and earningsscore

Strong Strong Very strong Strong



Table 3

Peer Group 1: U.K. Life Insurance Peers With Strongest FSRs Without Support (cont.)

Company NameLegal & General GroupPLC (GCP) Aviva Group

Prudential AssuranceCo. Ltd

Scottish WidowsLtd.

Risk position score Intermediate risk Intermediate risk Moderate risk Intermediate risk

Financial flexibility score Strong Strong Strong Adequate

Anchor SACP/GCP aa- a+ a+ a

Management andgovernance score

Strong Satisfactory Satisfactory Satisfactory

ERM score Adq, strong risk controls Strong Adq, strong riskcontrols

Strong

Liquidity score Exceptional Exceptional Exceptional Exceptional

ERM--Enterprise risk management. FSR--Financial strength rating. GCP--Group credit profile. IICRA--Insurance Industry And Country RiskAssessment. N/A--Not applicable. SACP--Stand-alone credit profile. Data as of June 27, 2019.

Table 4

Peer Group 2: U.K. Life Insurance Peers That Are Part Of Larger Groups And Have FSRsThat May Benefit From Group Support

Company Name Scottish Equitable PLC Scottish Widows Ltd. UNUM Ltd.

Sector Life insurance Life insurance Life insurance

Financial strength rating A+/Negative A/Stable A-/Stable

Holding company rating N/A N/A N/A

Gross annual premiums (mil. £) 9,483.51 7,358.00 440.00

Total assets (mil. £) 72,122.18 147,307.15 2,929.00

Business risk profile Satisfactory Strong Satisfactory

IICRA score Low risk Low risk Low risk

Competitive position score Adequate Strong Adequate

Financial risk profile score Moderately strong Strong Strong

Capital and earnings score Strong Strong Strong

Risk position score Moderate risk Intermediate risk Intermediate risk

Financial flexibility score Adequate Adequate Adequate

Anchor SACP/GCP bbb+ a a-


Satisfactory Satisfactory Satisfactory

ERM score Strong Strong Adequate

Liquidity score Exceptional Exceptional Exceptional




Table 5

Peer Group 3: U.K. P/C Insurance Peers With Strongest FSRs Without Support

Company Name Lloyd'sHiscox InsuranceGroup

RSA InsuranceGroup

Direct Line InsuranceGroup

Sector Reinsurance Reinsurance P/C insurance P/C insurance

Financial strength rating A+/Stable A/Stable A/Stable A/Stable

Holding company rating N/A BBB+/Stable BBB+/Stable BBB+/Stable

Gross annual premiums (mil.£)

33,590.97 2,549.00 7,599.00 4,022.55

Total assets (mil. £) 108,395.83 7,207.00 20,600.03 10,841.95

Business risk profile Very strong Strong Very strong Strong

IICRA score Intermediate risk Intermediate risk Intermediate risk Intermediate risk

Competitive position score Very strong Strong Very strong Strong

Financial risk profile score Moderately strong Moderately strong Upper adequate Very strong

Capital and earnings score Very strong Moderately strong Moderately strong Very strong

Risk position score High risk Moderate risk Moderate risk Intermediate risk

Financial flexibility score Strong Strong Adequate Adequate

Anchor SACP/GCP a+ a- a a


Strong Strong Fair Satisfactory

ERM score Adq, strong riskcontrols

Strong Very strong Adq, strong riskcontrols

Liquidity score Strong Exceptional Exceptional Exceptional


Table 6

Peer Group 4: U.K. Life Insurance Peers With Less Diversified Or Specialized BusinessRisk Profile

Company NameScottish EquitablePLC

Royal London MutualInsurance Society Group

St. James's PlacePLC

Liverpool VictoriaFriendly Society Group

Sector Life insurance Life insurance Life insurance Multiline insurer

Financial strength rating A+/Negative A/Stable A-/Stable BBB+/Stable

Holding company rating N/A N/A N/A N/A

Gross annual premiums(mil. £)

9,483.51 1,239.00 49.90 2,431.00

Total assets (mil. £) 72,122.18 99,318.84 90,005.92 18,531.03

Business risk profile Satisfactory Strong Satisfactory Satisfactory

IICRA Score Low risk Low risk Low risk Low risk

Competitive positionscore

Adequate Strong Adequate Adequate

Financial risk profile score Moderately strong Strong Strong Upper adequate



Table 6

Peer Group 4: U.K. Life Insurance Peers With Less Diversified Or Specialized BusinessRisk Profile (cont.)

Company NameScottish EquitablePLC

Royal London MutualInsurance Society Group

St. James's PlacePLC

Liverpool VictoriaFriendly Society Group

Capital and earningsscore

Strong Very strong Strong Strong

Risk position score Moderate risk Moderate risk Low risk Moderate risk

Financial flexibilityscore

Adequate Adequate Adequate Less than adequate

Anchor SACP/GCP bbb+ a a- bbb+


Satisfactory Satisfactory Satisfactory Fair

ERM score Strong Adq, strong risk controls Adq, strong riskcontrols

Adq, strong risk controls

Liquidity score Exceptional Exceptional Exceptional Exceptional


Table 7

Peer Group 5: U.K. P/C Specialized Insurance Peer Group

Company Name Ecclesiastical Insurance Group Flood Re Ltd.

Sector P/C insurance Reinsurance

Financial strength rating A-/Stable A-/Stable

Holding company rating N/A N/A

Gross annual premiums (mil. £) 326.14 212.30

Total assets (mil. £) 1,334.34 309.40

Business risk profile Satisfactory Satisfactory

IICRA score Intermediate risk Intermediate risk

Competitive position score Adequate Adequate

Financial risk profile score Strong Strong

Capital and earnings score Very strong Very strong

Risk position score Moderate risk Moderate risk

Financial flexibility score Adequate Strong

Anchor SACP/GCP a- a-

Management and governance score Satisfactory Fair

ERM score Adq, strong risk controls Adequate

Liquidity score Exceptional Strong




Related Research

- Lloyd's of London Outlook To Stable On Portfolio Remediation And Improved Capitalization; 'A+'Ratings Affirmed, June 14, 2019

- Legal & General Group PLC, June 4, 2019

- Lloyd's, May 21, 2019

- Royal & Sun Alliance Insurance PLC, May 20, 2019

- Direct Line Insurance Group PLC, May 16, 2019

- Hiscox Insurance Group, May 15, 2019

- Scottish Equitable PLC, March 7, 2019

- Countdown To Brexit: Research By S&P Global Ratings, Feb. 19, 2019

- UNUM Ltd., Dec. 5, 2018

- Ecclesiastical Insurance Office PLC, Nov. 19, 2018

- Flood Re Ltd., Oct. 31, 2018

- Scottish Widows Ltd., Oct. 17, 2018

- Aviva PLC, Oct. 16, 2018

- St. James's Place U.K. PLC, Sept. 25, 2018

- Liverpool Victoria Group, Sept. 25, 2018

- Prudential Assurance Co. Ltd. (The), Sept. 25, 2018

- Royal London Mutual Insurance Society Ltd., July 20, 2018

This report does not constitute a rating action.





S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors.S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com and www.spcapitaliq.com(subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additionalinformation about our ratings fees is available at www.standardandpoors.com/usratingsfees.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of theirrespective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&Phas established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with eachanalytical process.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction forcertain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its solediscretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment aswell as any liability for any damage alleged to have been suffered on account thereof.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they areexpressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are notrecommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of anysecurity. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied onand is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when makinginvestment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. WhileS&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of duediligence or independent verification of any information it receives.

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) orany part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in adatabase or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively,S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as theirdirectors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timelinessor availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause,for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content isprovided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO,ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORSOR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANYSOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental,exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation,lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised ofthe possibility of such damages.

Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

No-Deal Brexit Risks Could Cloud The Broadly Stable ... · U.K. insurers' business risk profiles to...

Documents

Transcript of No-Deal Brexit Risks Could Cloud The Broadly Stable ... · U.K. insurers' business risk profiles to...