The pensions announcements in the March 2014 UK budget have credit negative implications for UK life insurers, particularly those focussed on annuities, said Moody's Investors Service in a report published today. The report outlines the changes that will occur to the pension system and the credit implications for UK Life insurers. In the coming weeks we will evaluate in more detail these changes and the potential for medium-term negative effects on UK life insurers' credit quality.
"Whilst these changes may ultimately encourage future savings into pension products, we think that the changes will significantly reduce sales volumes and margins in the UK individual annuity market, a key driver of future profitability for many insurers," said David Masters, Moody's Vice President and Senior Analyst. "We estimate that individual annuities currently account for up to approximately 50% of UK life insurers' UK new business value, with individual annuities currently one of the most profitable lines of business for UK life insurers, and that individual annuity sales could decline by between 50%-75%", adds Mr. Masters.
The report titled "UK life Insurance -- 2014 budget will reduce sales and margins for UK annuities, a credit negative" 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.
"These changes are credit negative for UK life insurers," continues Mr. Masters. "First, annuity volumes are likely to decrease significantly, leading to falling value of new business (VNB) from annuities and, over time, insurers' profits may also fall. Second, competition for retirement products from alternative providers is likely to increase considerably", concludes Mr. Masters.
Moody's expects that it will take some time for consumers and the financial services industry to fully adapt to the new regime, as consumers evaluate their much larger degree of optionality in retirement and as providers re-evaluate their product range and look for annuity replacements. Whilst insurers are likely to try to capture retirement asset flows through alternative products (such as equity ISAs/SIPPs/drawdown products) following these changes, new business margins and returns on these products are currently much lower than on individual annuities, reducing insurers' overall profitability.
|
