AMB Country Risk Report
August 18, 2015
Our Insight, Your Advantage.
United Kingdom
Country Risk Tier
• The Country Risk Tier (CRT) reflects A.M. Best’s
assessment of three categories of risk: Economic, Political
and Financial System Risk.
CRT-1
• The United Kingdom (UK) is a CRT-1 country with low or
very low levels of economic, political and financial system
risk. Following slower growth in 2012 at the rate of 0.7%,
the economy accelerated in 2013 and 2014, growing at a
rate of 1.7% and 2.6% respectively. The stronger growth is
expected to continue in 2015 at a rate of 2.7%, driven by
low inflation, weak commodity prices and strong consumer
and investor sentiment.
Economic Risk
Moderate
Low
High
Very Low
• A.M. Best considers the majority of countries pictured
below to be categorized as CRT-1 and CRT-2. Notable
exceptions are the Eastern European countries of Bosnia
and Herzegovina, Belarus and the Ukraine.
Very High
Political Risk
Moderate
Low
High
Iceland
Greenland
Finland
Iceland
Greenland
Very Low
Sweden
Very High
Norway
Norway
Financial System Risk
Estonia
Isle of Man
Isle of Man
Moderate
Low
High
Ireland
Denmark
Netherlands
Very High
Guernsey
United
Germany
Kingdom
Liechtenstein
Guernsey
Luxembourg
Jersey
Switzerland
San Marino
Slovenia
Croatia
France
Portugal
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Copyright © 2015 by A.M. Best Company, Inc.
as
Dominican
Macedonia
Monaco
Tunisia
Malta
Canary
Islands
Tunisia
Russia
Bulgaria
Macedonia
Turkey
Greece
Cyprus
Malta
Syria
Cyprus
Lebanon
Iraq
Israel
Morocco
Algeria
Azerbaija
Turkey
CRT 1 2 3 4 5
Canary
Islands
Georgia
Armenia
Albania
Monaco
Gibraltar
Morocco
Montenegro
Greece
Portugal
Gibraltar
Bosnia & Serbia
Herzegovina
Italy
Albania
Spain
Romania
Croatia
Bulgaria
Republic of
Moldova
Hungary
Slovenia
Bosnia & Serbia
Herzegovina San Marino
Italy
Ukraine
Republic of
Switzerland
Romania
Montenegro
Azores
Poland
Czech
Ukraine
Republic
Slovakia
Moldova
Austria
Hungary
Andorra
Spain
Belarus
Germany
CzechBelgium
Republic
Slovakia
Liechtenstein
Russia
Lithuania
Poland
Netherlands
Andorra
Azores
Latvia
Lithuania
Luxembourg
Austria
Jersey
France
Estonia
Belarus
Ireland
United
Kingdom
Russia
Latvia
Denmark
Belgium
Very Low
Finland
Sweden
Lebanon
Israel
Jordan
Libya
Algeria
Libya
Egypt
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Sahara
(Occupied by Morocco)
Western Sahara
(Occupied by Morocco)
Jordan
Kuwa
Bahrain
Egypt
Saudi
1 Arabia
Qat
AMB Country Risk Report
United Kingdom
Regional Summary: Western Europe
• Western Europe is a highly developed
and affluent region. The 28 countries of
the European Union (EU) accounted for
25% of world GDP in 2014. The EU is
facilitating a single European market with
standardized regulatory systems and free
movement of people, goods, services and
capital. The 17 EU members of the eurozone use the euro as their currency.
• Western Europe has been experiencing a
prolonged period of slow economic growth,
with the EU growing 1.4% in 2014. Growth
is largely expected to remain muted at 1.8%
and 1.9% in 2015 and 2016 respectively.
On-going concerns over Greece’s economic
and political future have increased the
potential downside risks to growth and
stability throughout the European Union.
Vital Statistics 2014
Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2013 - 2014)
USD bn
mil
USD
%
%
USD mil
USD mil
%
2945.15
64.5
45,653
2.6
1.5
235,321
115,945
7.9
Regional Comparison
Country Risk Tier
CRT-1
CRT-1
CRT-1
CRT-2
CRT-2
CRT-2
United Kingdom
France
Germany
Ireland
Italy
Spain
Source: IMF, Axco, Swiss Re and A.M. Best
• In March 2015 the European Central
Bank launched a program of Quantitative
Easing, expected to last through September
2016.The program entails the purchase
of 60 billion EUR of assets monthly in an
effort to boost growth, encourage lending
and increase inflation.
Economic Growth
Economic Risk: Low
• The UK’s service industries, including
financial services and real estate activities,
represent three quarters of economic
production. In 2014 the housing market
slowed, following the implementation
of stricter lending standards and loan to
income limits.
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Real GDP
3
2
1
%
• The UK economy, the sixth largest in the
world according to the IMF, has benefited
from declining unemployment, low
inflation and lower oil prices.These have
helped to boost investor and consumer
sentiment over the past year.
CPI Inflation
4
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
-1
-2
-3
-4
-5
• While growth is positive, it could be
constrained near-term by tight fiscal policy,
geopolitical concerns and a potentially less
accommodative monetary policy.
Source: IMF World Economic Outlook and A.M. Best
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AMB Country Risk Report
United Kingdom
Political Risk: Very Low
Political Risk Summary
• The United Kingdom is a member of the
European Union.The United Kingdom,
along with Denmark, obtained special
opt-outs from the Maastricht Treaty
which allow them to not adopt the euro
unless they wish.The pound remains
the currency, allowing the UK the use of
independent monetary policy.
Score 1 (best) to 5 (worst)
United Kingdom
World Average
International Transactions
Policy
5
4
Legal System
Monetary Policy
3
2
1
Regional Stability
• Strong fiscal austerity measures were
introduced in 2013 and will continue nearterm.The government is attempting to shrink
the fiscal deficit from a high of -7.6% of GDP
in 2012 to a projected deficit of -3.8% in 2015.
Fiscal Policy
0
Social Stability
Business Environment
Government Stability
• The Conservative Party currently
controls 331 of the 650 seats following
the May 2015 parliamentary election.This
majority will allow them to pursue their
policies of debt reduction, spending cuts,
tax cuts and a reduction of bureaucracy.
Labor Flexibility
Source: A.M. Best
GDP Per Capita and Population
for Selected Countries
Financial System Risk: Very Low
• The Prudential Regulation Authority of
the Bank of England regulates the financial
services industry, including insurance.
90
60,000
GDP Per Capita
Population
80
50,000
70
40,000
60
40
20,000
30
20
10,000
10
0
United Kingdom
France
Source: IMF and A.M. Best
Germany
Ireland
Italy
Spain
0
Millions
USD
50
30,000
• The UK is widely seen as a major
center for international insurance and
reinsurance and is home to the London
Market, a wholesale market that writes
risk around the world. Lloyd’s of London
accounts for over half of the business on
the London Market.
• The financial sector is stable and
bank lending has increased, following
government intervention, increased
supervision in the wake of the financial
crisis and newly implemented solvency
and capital requirements.
• Monetary policy is likely to tighten in
the coming year as inflation is expected
to tick up and the labor markets continue
to tighten.
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AMB Country Risk Report
United Kingdom
GUIDE TO BEST’S COUnTry rISk TIErS
A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurer’s financial stability, strength and performance.
A.M. Best’s Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.
Country risk Tiers
Country risk Tier
Definition
CRT-1
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
CRT-3
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
CRT-4
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
CRT-5
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.
Country risk reports
A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a country’s Country
Risk Tier assignment. It is not intended to summarize A.M. Best’s opinion on any particular insurance market or the prospects for that market.
Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.
Category of risk
Definition
Economic Risk
The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an insurer.
A.M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.
Political Risk
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the government’s economic policies.
Financial System Risk
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industry’s level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.
Political risk Summary
To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.
Category
Definition
International Transactions
Policy
Measures the effectiveness of the exchange rate regime and currency management.
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Measures the ability of a country to effectively implement fiscal policy.
Business Environment
Measures the overall quality of the business environment and ease of doing business.
Labor Flexibility
Measures the flexibility of the labor market, including the company’s ability to hire and fire employees.
Government Stability
Measures the degree of stability in a government.
Social Stability
Measures the degree of social stability, including human development and political rights.
Regional Stability
Measures the degree of stability in the region.
Legal System
Measures the transparency and level of corruption in the legal system.
Country risk Tier Disclosure
A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Best’s Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Copyright © 2015 by A.M. Best Company, Inc.
Version 091714
Copyright © 2015 by A.M. Best Company, Inc.
All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.
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