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Life insurance sector to remain stable for the next 12 months

Robust risk management, prudential regulation and a resilient UK economy will ensure stability in the life insurance industry over the next 12 months, says a Standard & Poor’s report.

Eighty-five per cent of ratings in the UK are currently stable, according to the Life Insurance Industry Risk Analysis report, the first of it type carr-ied out by the ratings agency.

Since S&P revised its outlook on the UK market to stable from negative in September 2004, there have been no rating changes on UK life insurers, apart from the negative outlook on Standard Life, A+/negative/A-1, and the positive outlooks on The Equitable Life, B/Positive/–, and Abbey National Life, A+/Positive/–.

S&P says conditions will remain stable over the next 12 months due to a combination of factors, including favourable equity markets and new regulation.

The agency says regulatory and accounting changes imp-lemented by the FSA are positive for the long-term credit quality of the UK life sector and have contributed to improvements in risk management practices among insurers.

The report also shows that IFAs are still the dominant distribution channel in the sector. In 2004, 63 per cent of new business was sourced through IFAs, 27 per cent through single ties, and 10 per cent through non-intermediated channels. Banks have continued to be less successful at generating insurance sales in the UK than in many other European markets.

Norwich Union’s parent company Aviva was the biggest player in the life and pension market in 2004, generating 12 per cent of market share. Standard Life followed closely with 11 per cent of new business, HBOS on 9 per cent, Legal & General, Lloyds TSB and Prudential on 8 per cent and Aegon on 7 per cent.

S&P primary credit analyst Mark Button says: “The pressure on profitability from external factors such as the low interest rate environment is forcing insurers to be increasingly active in managing business mix, cost and balance sheets to protect and enhance earnings.”

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