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Fitch: UK Life Insurance Sector Outlook Revised to Stable
November 30, 2017 / 10:42 AM / 15 days ago

Fitch: UK Life Insurance Sector Outlook Revised to Stable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: UK Life Insurance here LONDON, November 30 (Fitch) Fitch Ratings has revised its outlook for the UK life insurance sector to stable from negative, reflecting a stabilisation of the individual annuity market and steady demand for savings and asset management products. We expect business models to diverge further in the coming year as firms target capital-efficient growth, while low yields will drive insurers to diversify their investment portfolios. The individual annuities market has shrunk significantly following changes to UK pension rules, but there has also been a reduction in the number of firms writing new business and we expect sales for firms that remain in the market to be broadly stable in 2018. Insurers that have stopped writing new annuities are likely to focus on selling off blocks of closed annuities business to allow them to deploy capital in other business lines and avoid diseconomies of scale as policies run off. Firms that continue to sell annuities will look at alternative options to improve capital efficiency, which are likely to include significant use of longevity reinsurance. We expect these insurers will also increase their activity in the bulk annuities and pensions de-risking markets in the coming year, although sales volumes will be uneven due to the large size and uncertain timing of individual deals. Insurers with substantial asset-management arms are likely to increase their focus on this side of the business during 2018 due to the low capital requirements and high growth potential compared with traditional life insurance business. However, competition in this area is already tough and will only increase. Outcomes are therefore likely to be mixed, with firms that already have the most funds under management holding a competitive advantage. Returns on bonds are likely to remain low in the coming year and this will probably lead to further diversification of insurers' investment portfolios. Infrastructure assets could be a key beneficiary following a reduction in the capital requirements for these assets under Solvency II. Proposals to further reduce the capital requirements on bonds and equities linked to infrastructure corporates could also increase insurers' investment in the sector. High property prices and an ageing population may also support further growth in the lifetime mortgage market in 2018. Insurers that write annuities are increasingly looking at this market to generate assets to back their long-term liabilities. This could potentially expose firms to losses in the event of a property market downturn, but this could be limited by strict controls over loan-to-value ratios. The full report, 2018 Outlook: UK Life Insurance' is available at www.fitchratings.com or by clicking the link above. Contact: Sam Mageed Director Insurance +44 20 3530 1704 Fitch Ratings Limited 30 North Colonnade London E14 5GN Willem Loots Senior Director Insurance +44 20 3530 1808 Simon Kennedy Senior Analyst Fitch Wire +44 20 3530 1387 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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