Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • March 2014
03

Budget changes will hit insurers' profit margins, says Moody's

Open-access content Tuesday 25th March 2014 — updated 5.13pm, Wednesday 29th April 2020

Last week’s Budget will reduce both sales and margins for UK life insurers, according to a Moody’s

The ratings agency's report on changes in the pension system and credit implications for UK life insurers revealed that Chancellor George Osborne's decision to abolish the requirement to buy an annuity would have a 'credit negative' effect on UK annuities. 

Osborne claimed that his radical pension reforms would give pensioners more choices at point of retirement, but Moody's said the chancellor had taken away a 'key driver of future profitability for many insurers'.

Moody's vice president and senior analyst David Masters said individual annuities currently account for around a half of UK life insurers new business value and one of their most profitable lines of businesses. Yet, individual annuity sales could fall by up to 75% following the announcement in the Budget, he said.

'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,' Masters said. 

'These changes are credit negative for UK life insurers. First, annuity volumes are likely to decrease significantly, leading to falling value of new business from annuities and, over time, insurers' profits may also fall. Second, competition for retirement products from alternative providers is likely to increase considerably.'

Moody's said it expected that consumers and the financial services industry would take some time to fully adapt to the new regime, as consumers evaluate wider retirement options and providers reassess their product range and look to replace annuities. 

While insurers are likely to try and capture retirement asset flows, through alternation products such as equity ISAs, SIPPs (Self-Invested Personal Pension) and drawdowns, new business margins and returns on these products are much lower than on individual annuities, reducing overall profitability.

Meanwhile, in a separate report Standard and Poor's said it anticipated that the pension reforms would reduce market growth projections for some UK insurers with narrow product profiles and affect the competitive landscape. 

But it added: 'They are unlikely to have an immediate or material effect on the credit strength of our rated insurers.'

S&P said it would continue to examine long-term implications of the chancellor's reforms, but expects any negative effects to be mitigated by the sector's product diversity and balance-sheet strength.


This article appeared in our March 2014 issue of The Actuary.
Click here to view this issue
Filed in:
03
Topics:
Life insurance

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Underwriting Risk Manager

London (Central)
£85K-£95K + Benefits
Reference
124386

Reserving Manager (Contract)

London (Central)
£1200 - £1400 per day
Reference
124385

Life Actuary - Contract - IFRS 17 Financial Impact

England, London / England, Bristol / North Yorkshire, England
£900 - £1150 per day
Reference
124384
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2022 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ