The ratings agency has put the UK life insurance sector on negative outlook.
Moody’s has warned that life offices lack control of product distribution due to the strength of the IFA sector.
It says that the high commission required to retain business flows is a contributing factor to the poor performance of many UK life companies.
Moody’s says that personal accounts are likely to have a limited “cannibalisation’” impact, due to the scheme’s focus on lower-earners.
But the research note goes on to say: “We expect that there is still a real risk that, through price contagion, this could add further sustained pressure to the profitability of pensions.”
Other factors affecting Moody’s outlook for the UK life sector include strong but depressed capitalisation, weakening profitability and substantial exposure to equities.
Moody’s says that the industry, although still showing a robust capital position and with the strongest players showing still very strong capital positions, has clearly experienced some deterioration in capitalisation in the last six-12 months.
If the economy does enter a relatively prolonged period of slowdown, with
a depressed equity market, Moody’s believes it is unlikely that capitalisation
levels will improve markedly in the short-to-medium term.