Moody’s Investors Service has changed its credit rating outlook on the UK life insurance industry to negative from stable, given recent budget announcements that will give pensioners more control over their savings.
The rating agency altered its outlook for British insurers in the wake of changes to pension rules that were set out in the UK’s recent budget. Moody’s says that the policy shift could drive individual annuity sales down by between 50%-75% of their current level over the near-to-medium term. It also expects that life insurers will face considerable challenges in retaining maturing pension assets.
“The negative outlook reflects Moody’s view of the fundamental credit conditions that will affect UK life insurers and indicates that, on average, negative rating actions are more likely than positive ones over the next 12-18 months,” it says.
In the short-term, Moody’s expects a significant reduction in sales volumes and margins in the UK individual annuity market, which is a key driver of future profitability for many insurers.
“We expect to revisit our negative outlooks within the next 12-18 months, focusing broadly on how consumers and firms have adapted to the new retirement product market,” it says.
The rating agency also changed its outlooks on certain insurers to negative. Although it notes that, over time, these companies will be able to sell additional volumes of insurance or asset-management products to replace the value of lost annuity business. It also says the impact of lost annuity sales will be small for the next few years, as profits from the in-force book of annuities are not impacted.