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Fitch retains negative outlook for UK life insurers

Fitch Ratings has retained its negative credit ratings outlook for the UK life insurance sector adding that prospects for new business and earnings remain subdued.

The rating agency’s market prediction comes after a raft of half year results from UK life offices showed sales slide across the board.

Total sales on a present value of new business premium basis for Aviva, Friends Provident, Legal and General, Lloyds Banking Group, Prudential and Standard Life tumbled 24 per cent from £31bn in the first half of 2008 to £23bn for the same period this year.

Fitch’s insurance group senior director David Prowse says: “Sales have fallen across the market as consumers have cut back on purchasing insurance and savings, in order to channel more of their disposable income into reducing their mortgage burden.

“With-profit bond sales are notably higher as the investment guarantees and smoothing they provide seem to be proving highly marketable in a time of volatile investment returns.”

Fitch says reported new business margins were varied in the first half of the year and are heavily dependent on product mix, with annuities providing high margins for some insurers.

Prowse adds: “Many companies believe the higher yields that were available in the first half of 2009 on the corporate bonds that they bought to back annuity sales will translate into higher investment profits.”

But while UK life insurance sales have declined in the past year, insurers have generally strengthened their capital positions.

Fitch says many insurers have restricted sales of their more capital-heavy products in order to conserve cash and to further boost capital have issued hybrid debt or disposed of some of their operations.

The ratings agency says it will continue to monitor the sector for any significant worsening of sales volumes, margins or policy cash-in rates, downgrading of bond portfolios or rises in bond default rates.

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