LONDON–(BUSINESS WIRE)– AM Best has maintained a stable market segment outlook on the U.K. life insurance market, supported by key factors that include strong growth opportunities focused on annuities and defined contribution pensions, higher allocations to illiquid assets and generally sophisticated enterprise risk management (ERM) practices among carriers.
Despite the stable outlook, AM Best notes the regulatory uncertainty that persists due to the U.K.ās planned departure from the European Union, which creates heightened investment risks to insurers, as well as the risk of diminished fungibility of capital for larger insurers with subsidiaries in the EU but outside the U.K.
As detailed in a new Bestās Market Segment Report, titled āMarket Segment Outlook: U.K. Lifeā, the outlook for U.K. life insurers has become dominated by pension-related products following the demise of the U.K. with-profit product and the similarly diminished role of investment bonds. A result of pension reform is that U.K. life insurers have evolved to focus on products that AM Best believes will provide strong growth over the near and medium terms, due principally to a strong pipeline of bulk annuity transactions and the accumulation of defined contribution pension assets. However, agent and broker distribution channels have withered, and companies are focusing on the digital space for individual sales, which may help them preserve a retail presence.
Nevertheless, U.K. life insurers for the most part are operating in a business-to-business marketing environment, where consultants and other advisers of a predominantly corporate client profile play a large role.
AM Best also views the segmentās higher allocations to illiquid assets as an appropriate way to create value from insurersā role as gatherers of illiquid liabilities. However, the growing scale of the move will require careful management. The accumulation of skill-sets related to illiquid assets eventually will bring certain opportunities and challenges into focus for the segment; for example, optimizing the availability of the envisaged returns from these assets to defined contribution pension savers.
AM Best views the larger U.K. life insurance companies as comfortably capitalised and currently able to fund projected medium-term expansions. AM Best expects capital requirements to be well-covered in light of the segmentās generally sophisticated ERM and capital management capabilities. U.K. insurers generally run investment portfolios that are well-matched by duration with their liabilities, and AM Best does not view them as unduly sensitive to movements in risk-free interest rates. However, a rise in real interest rates from current low levels could be positive for defined contribution pension savings and annuity sales.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=284219 .
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Source: AM Best