While the likelihood of Brexit ending in a no-deal scenario remains high, it does not yet warrant becoming a base for rating purposes, according to S&P Global analysts.
S&P points to a strong incentive for both the UK and European Union (EU) to successfully negotiate a more favourable exit as the primary reason for this view.
However, a no-deal Brexit could result in negative revisions in circumstances where a more fragile UK economy creates weaker credit metrics, and downgrades where disruption is more immediate and material, S&P explained.
“In case of no deal, where short-term disruption proves to be material enough to undermine competitiveness and operational performance, then downgrades could also occur, particularly for certain non-financial corporates,” said S&P Global Ratings credit analyst Paul Watters.
S&P says outlook revisions, rather than widespread downgrades, would be more likely to occur within the UK insurance sector in the event of a no-deal Brexit.
However, analysts do not believe the risk of business interruption, particularly concerning the supply chain for non-life insurance business and claims-paying ability, presents a material risk at this time for the ratings on UK insurers.
