Life insurers in the UK can look forward to a period of stability over the next 12 to 18 months, with strong operating profits underpinned by continued solvency resilience and increasing demand for products.
That is according to a new outlook report from financial services company Moody's, which predicts demand for bulk annuity products to continue as insurers off-load longevity risk to reinsurers and source high-yielding illiquid assets.
Growth in retirement pension products is also expected to remain strong thanks to freedoms introduced in 2015, while structural shifts like rising defined contribution scheme membership and pension auto-enrolment should underline this trend.
In addition, the report highlights how Solvency II capitalisation ratios are comfortable for most life insurers, despite the UK regulator increasing its scrutiny of the matching adjustment.
"Our stable outlook factors in the sector's robust capitalisation and the positive impact on operating profits of expected pension, retirement and bulk annuity market growth," said Moody's senior credit officer, Dominic Simpson.
"These factors offset the negative pressure on margins from persistent regulatory headwinds and the high level of economic uncertainty from Brexit."
Despite this, Moody's said that the Financial Conduct Authority's review of equity release mortgages could negatively affect the Solvency II ratios of insurers most exposed to the product.
The regulator is looking to ensure fair treatment for customers, which is expected to exacerbate margin pressure for some, while its review of individual pension and investment platform markets could also lead to increased competition in these areas.
On Brexit, Moody's said that the impact on life insurers will likely be moderate, and sees operational risk as manageable, based on its current base case that the EU and UK will conclude an agreement.
"However, in a 'no deal' scenario, negative impact on sales will be more pronounced and increased volatility in financial markets would weigh on the UK life sector's capitalisation," the company added.