LONDON--(BUSINESS WIRE)--A.M. Best has a stable outlook on the United Kingdom (U.K.) life insurance sector, according to a new briefing. Strong near- to medium-term growth opportunities focused on defined contribution (DC) pensions and annuities are offset by life insurers’ narrow active product range, regulatory uncertainty and a likelihood of increasing investment risk.
The Best’s Briefing, “Market Segment Outlook: United Kingdom Life,” states that the demise of the U.K. with-profit product (with some notable exceptions) and the similarly diminished role of investment bonds means that the outlook for U.K. life insurers has become dominated by pension-related products and that, consequently, the regulatory and tax environment for pensions has become a key risk.
At the same time, in A.M. Best’s view, the sector’s retail presence has significantly diminished as a consequence of the step back from non-pensions savings. Over time, this could erode the value of life insurers’ brands, pressure their pricing power and, importantly, limit the industry’s lobbying influence. Whilst previous retail distribution channels have withered, the companies are focusing on the digital sphere, which may enable them to preserve a retail presence. Nevertheless, in reality U.K. life insurers are, for the most part, operating in a business-to-business marketing environment.
A.M. Best views the sector’s increasing investment allocation to illiquid assets as, at least directionally, an appropriate and positive step. However, significant changes will test the risk management of even the most well-managed companies and increase investment risk.
Regarding solvency, A.M. Best views the larger U.K. life companies as comfortably capitalised and, on the basis of current strategies, able to fund projected medium-term expansion. A.M. Best notes that challenges for the sector include the careful management of exposure to illiquid assets, regulatory uncertainty, product innovation and managing the longer-term path for digital and retail distribution.
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