LONDON--(BUSINESS WIRE)--Life insurers in the United Kingdom remain in a strong position as they have solid levels of capitalisation and are focused on reducing costs, generating cash and improving pricing discipline, according to a new report from A.M. Best Co.
Market participants are supported by a generally balanced exposure of shareholders’ funds to equities and relatively high-quality bond portfolios. However, while the U.K. life sector is currently well placed, it faces challenges from the low interest rate environment and regulatory changes, including the Retail Distribution Review (RDR) and the Gender Directive.
In the new report, titled “UK Life Insurers Well Placed to Adapt to Regulatory Change”, A.M. Best states the RDR is likely to have brought greater competition among market participants and increased challenges in attracting new business. Sovereign and corporate downgrades, and the volatility in the equity markets, are adding pressure to life insurers.
A.M. Best considers asset-liability management to be increasingly important for insurers to meet their existing and future obligations to policyholders. Anandi Nangy-Kotecha, associate director, analytics, said: “Investment in assets that will generate sufficient yields to cover minimum guarantees is fundamental. As reinvestment yields are lower in the current interest rate environment, companies may consider reinvesting in assets with shorter durations in the hope that interest rates will rise, leading to a temporary mismatch of asset-liability duration”.
The report also states that UK life insurers continue to face uncertainty surrounding the implementation of Solvency II, although A.M. Best considers the leading UK life companies to be relatively well placed to meet the new directive.
Yvette Essen, director, industry research - Europe and emerging markets, and author of the report, added: “From a regulatory perspective, UK life insurers have a strong set of guidelines in place, although the sector continues to be impacted by the repeated delays in the implementation of Solvency II. Companies are adapting to domestic regulatory changes, including the RDR and gender-neutral pricing, and A.M. Best considers the sector to be well positioned to adjust to these developments”.
To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=218541.
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