MOODY'S: Despite Radical Changes, UK Life Insures Are Adapting Well To Challenging LANDSCAPE

According to Moody's Investors Service, the UK life industry is in a better position than a year ago despite radical changes to the retirement landscape following pension reforms. Moody's views the UK opting to leave the European Union (Brexit) as the main potential short-term risk to the stability of the sector. However, the negative impact on insurers' credit fundamentals is expected to be relatively modest, as Moody's previously stated in a May report.

"UK life insurers are adapting well to the new environment and are generally well set up to exploit increased savings opportunities and the demand for risk products", said Dominic Simpson, Moody's Vice President and Senior Credit Officer. "This is notwithstanding regulatory and political headwinds which we expect to be a feature for some years".

Moody's report titled "Life Insurance - UK Life Insurers are Adapting Well to the New, Challenging Landscape" is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

Moody's notes both the enhanced design and ramped up sales of alternative retirement products in the market. Many UK life insurers continue to improve the flexibility of and access to alternative retirement products such as income drawdown, and there are benefits of owning an asset manager. According to the rating agency, insurers with sizeable in- house asset managers are well-positioned to benefit from the increasing shift to asset management. Also, insurers continue to strengthen their distribution capabilities.

Insurers are taking advantage of growing low margin workplace pensions as a higher proportion of people saved into a workplace pension in 2015 and Moody's expect a further increase thanks to auto-enrolment. Bulk annuities and equity release are expected to compensate for lost individual annuity value of new business (VNB). However, bulls have become especially capital intensive under the new Solvency II regulatory regime, leading to significant sessions of longevity risk.

Moody's also notes that the uncertainty concerning capital requirements under Solvency II has been overcome with Solvency II ratios for leading UK life insurers comfortably above 100%. This is also thanks to a heavy reliance on transitional. The low-interest environment is not a key risk for UK life insurers, although is pushing them to invest in more illiquid assets.

More negatively, with the overarching theme of fair treatment for customers , we expect regulatory and political headwinds to remain a feature for some years; the current Financial Conduct Authority (FCA) probes highlight the increasing vigilance on the sector.