Europe

Negative outlook for UK life sector

The profitability of UK life insurance groups are under considerable pressure, according to rating agency, Moody’s which issued a negative outlook for the sector. The agency cited the impact of the difficult economic climate on new life and pensions sales as well “systemically unprofitable” business lines in the UK market. Neither does the agency expect these pressures to relent soon. Moody’s said product risk also remained as a negative pressure: despite new business sales increasingly focussing on low or no-guarantee products, the industry’s historical focus on with-profits policies continues to dominate balance sheets in most cases. On the positive side, the industry continues to maintain a robust capital position, despite the impact of falling equity markets, and the position of the strongest players remains very strong. But Simon Harris, a Moody’s Managing Director, said the industry has clearly experienced some deterioration in capital over the past six to 12 months. “Furthermore, if the economy does enter a relatively prolonged period of slowdown, with an associated depressed equity market, capitalisation levels are unlikely to improve markedly in the short-to-medium term, and further downside risk may remain material.”