Moody’s Investor service changes rating of UK Life insurance sector

UK Life Insurance Rating : 

Industry Outlook,

Moody’s mention that they had changed their outlook to stable from negative for the UK life sector reflecting our expectation of stable earnings, conservative capital management and increasing income diversity from captive asset managers. This outlook expresses their expectations for the fundamental credit conditions in the industry over the next 12 to 18 months.

According to Moody’s service, The change in outlook of UK life insurance primarily reflects three factors,

  • Their expectations of earnings stability supported by increasing cash generation.
  • The industry’s strong and resilient capitalisation, which we expect to continue, sustained by conservative capital management.
  • The strong performance of captive asset manager.

The profitability of the UK life industry is stable and supported by growing cash generation.

We expect theindustry’searnings to remain healthy overall, whilst earnings quality will improve given the focus on cash generation. The low interest-rateenvironment will gradually reduce profitability, but only marginally, given the industry’s relatively low sensitivity to interest rates.

Capitalisation has improved and we expect continued conservative capital management.

introduction of Solvency II, although postponed, has kept capital in check. Capitalisation has rebounded from its lows according to various capital metrics and is higher than pre-financial crisis levels. In addition the exposure to peripheral Eurozone investments is minimal.

Insurers are increasing their credit exposure to “new” asset classes, albeit in modest amounts thus far.

The retrenching of the banking system and the low interest-rate environment has meant that insurers are increasingly expanding their investment activities into the realm of banks. We believe that risks arise from the insurance sector’s often limited investment experience in these “new” assets and the need to develop specific expertise that companies might currently lack. »

UK economic growth remains weak, albeit long-term growth prospects for the UK life sector are strong.

The operating environment for UK insurers remains challenging, given the weak economic growth prospects and high level of household indebtedness, albeit some pockets of growth exist, particularly in the annuity and protection lines. We also expect long-term growth from the expanding pensioner population, and the continued lack of an adequate level of private pension provision.

The Profitability of the UK Life Industry is Stable and Supported by Growing Cash Generation.

Moody’s-Rated Life Insurers in UK

Issuer                                                                               IFSR                                                            Rating Outlook


Aviva Life & Pensions UK Ltd                                      Aa3                                                                    Negative

Clerical Medical Investment Group                             A2                                                                       Stable

Friends Life Limited                                                       A3                                                                      Negative

Legal & General Assurance Society Ltd                     Aa3                                                                        Stable

Prudential Annuities Ltd                                              Aa2                                                                         Stable

Prudential Assurance Company Ltd                           Aa2                                                                        Stable

Prudential Retirement Income Ltd                             Aa2                                                                        Stable

Royal London Mutual Insurance Society Ltd            A2                                                                         Stable

Scottish Amicable Insurance Fund                             Aa2                                                                        Stable

Scottish Life Fund                                                           A2                                                                          Stable

Scottish Widows plc                                                       A2                                                                          Stable

Skandia Life Assurance Company                               A2                                                                          Stable

Standard Life Assurance Ltd                                        A1                                                                           Stable

Zurich Assurance Ltd                                                     A1                                                                           Stable

UK life insurance sector is enjoying stable rating now.