11th February 2018

Standard & Poor's says UK life sector stable
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Standard & Poor's has reviewed the UK Lfe sector. The rating agency comments:
"We see the outlook for the UK life insurance sector as stable.
-Although economic growth will likely slow, we expect economic fundamentals to remain in line with historical standards unless there is a disorderly Brexit, which is not our base case.
-Income drawdown, bulk annuity, equity release, and corporate pensions (with the help of auto-enrolment) are likely to boost UK . life insurers' longer-term prospects.
-These prospects will, in part, be eroded by increased levels of competition among providers. Additionally, fee pressure in the asset management sector will continue to intensify.
-We forecast that the UK life sector's return on equity (ROE) will slightly and gradually reduce to 9.75-9.50% (compared with the sector's consolidated five-year average ROE of approximately 10%) over the next two years due to pressures on the sector.
-However, we anticipate 2017 results will be supported by one-off gains reported by life insurers to reflect flattening trends within their longevity books, as demonstrated by some within their half-year results.
We have assessed industry and country risk for the U.K. life insurance sector as low. The sector is one of the few major markets (alongside the US, France, Switzerland, and Australia) that we assess as low risk. Canada is the only life sector that we assess as being very low risk.
In the longer term, we expect to see the market for life insurance expanding, not least because of the automatic enrolment of staff into company pensions, which was expanded to cover all employers in 2018. The UK sector is less
exposed to interest rate risk than its European counterparts. Although individual annuity sales are falling, bulk annuity sales are likely to grow, although the number of life platforms in the UK may fall. No fundamental
change to the tax regime is expected in 2018.
Many UK life players benefit from diversified business models and a lower risk profile compared with many other life markets, reflecting an increased focus on fee-based products. Although some insurers are still phasing in the
final steps of their transformation to a greater focus on fee-based earnings, we do not foresee any further significant effect on earnings from this ongoing shift. We believe that profitability will remain resilient in the coming years, although growth and investment returns will experience pressure due to the volatile economic and political environment during Brexit negotiations.

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