A recent report by A.M. Best has concluded that the outlook for the UK life re/insurance sector is likely to be stable over 2018, owing to favourable growth opportunities from defined contribution (DC) pensions and bulk annuity transactions, despite a number of challenges and uncertainties.
A.M. Best expects the DC pension savings market to grow rapidly and become a significant source of capital for UK life re/insurers due to the predominance of younger age groups in DC schemes, which are in the asset accumulation stage of their pension journey.
Meanwhile, the report maintains that a strong pipeline of bulk annuity transactions has implications for considerable growth in the UK life market, although the total value of transactions will require careful management.
However, the life re/insurance sector also faces many challenges in its current environment, and will have to carefully manage its exposure to illiquid assets, regulatory uncertainty, product innovation and the long-term prospects of digital and retail distribution.
Additionally, the sector’s active product profile is considerably narrower than it has been in previous years due to the domination of pension-related products in the market, the demise of UK with-profit products and the diminished role of investment bonds, which will likely result in more fragile business models.
The report estimates that around 85% of UK with-profits assets now reside either in Prudential plc, with two of the larger funds that are in ‘soft run-off’ but remain owned by an active parent, or with the two largest closed fund consolidators – Phoenix Group and ReAssure.
Additionally, A.M. Best expects the UK mortality protection market to continue to grow at a mid-single digit percentage rate, and notes that this market is particularly likely to attract the attention of digital-based disruptors in the near future due to its reliance on data and its potential for digital marketing.
In regard to solvency, UK life companies are generally viewed as being comfortably capitalised, and their current active strategies seem capable of funding projected medium-term expansion.