Fitch Ratings has revised its outlook for the UK life insurance sector to stable from negative, as a result of the individual annuity market stabilising and ongoing demand for savings and asset management products.
Firms remaining in the annuity market are expected to make significant use of longevity reinsurance to minimise the capital requirements of new business, as well as look for alternative options to improve capital efficiency, which are likely to include significant use of reinsurance, according to Fitch.
Fitch notes a trend of a reduction in the number of firms writing new business, explaining that the individual annuities market shrunk significantly after UK pension rules changed.
However, the reduction in the size of the individual annuity market following the introduction of pension freedoms has been largely offset by the reduction in the number of firms writing new annuity business, and sales for firms remaining in the UK life annuities market are now forecast to be broadly stable into 2018, with the bulk annuity and pensions de-risking markets continuing to present opportunities for growth.
Fitch said; “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.
In addition, “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.”
Insurers that have stopped writing new annuities will be selling off blocks of their closed annuities business to free up capital for deployment in other lines of business and avoid dis-economies of scale as policies run off.
This will present an opportunity for fund consolidators to grow, Fitch said.
Insurers and reinsurers in the UK life insurance market are set for a coming year of growth and increased demand, with increased interest in longevity reinsurance and the bulk annuity and pensions de-risking markets representing opportunities for growth.
