The UK’s move to leave the EU will hit European life insurers, rating agencies have warned.

AM Best Senior Director of Analytics Catherine Thomas says the insurers’ high asset leverage leaves them more vulnerable to financial market volatility.

“This is likely to be felt by insurers both in the UK and continental Europe,” she said.

“We think it will be those companies with a higher proportion of risk assets that will be most affected.”

Dagong Europe Credit Rating Agency says life insurers are already under pressure from low interest rates.

“This sector, particularly UK life, is mostly exposed to possible negative effects of Brexit, including capital market volatility, uncertainty and weakening of macroeconomic environment and profitability,” it says.

Ms Thomas flags knock-on effects from falling investor and consumer confidence in life insurers.

“In the longer term, the knock-on effect is likely to slow economic growth, with negative implications for both the revenue and the profitability prospects of UK insurers,” she said.

Aside from the investment implications, UK life insurers may face operational difficulties, depending on the exit terms.

“If UK insurers have to operate without the EU financial services passport scheme, they may need to set up an EU domicile subsidiary to continue to access that business,” Ms Thomas said. “That will have operational, regulatory and tax costs associated with it.”

She says Europe-based insurers writing business in the UK must consider how to access the market.

Dagong says EU and UK life insurance companies’ profitability will be affected by increased political and economic uncertainty.

“Life players in the UK have in general a wider and more diversified international footprint. But their exposure to the European market is moderate and comparable with North America and Asia.”

Ms Thomas says the exit process is expected to take at least two years, giving insurers time to adapt their operating structures.