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Life offices still face tough time despite market boost

Rating agency Fitch is warning against complacency and over-confidence in the UK life insurance sector despite the recent lift in equity markets and it is maintaining its negative outlook for the sector.

Fitch says there are still “significant challenges and difficulties ahead”, with consolidation meaning that the weaker and “less well positioned” players will continue to drop out.

It says Aviva, Legal & General, Prudential and Standard Life will emerge as the top four but it does not suggest an overall leader.

The report, Signs of Life: Mid-Year Review of UK Life Insurance, published last week, shows that for the major life insurers, annual premium equivalent sales – 100 per cent of regular premiums plus 10 per cent of single premiums – generally fell in the first half of this year compared with strong figures for the same period last year.

Fitch suggests that the major factor was the fall of almost 75 per cent in the size of the with-profits bond market. Statutory solvency ratios at the end of the first half of this year were similar to year-end levels last year.

Fitch says over the long term, it believes the life insurance industry&#39s fundamentals are strong, with the UK demographics offering opportunities for growth.

Associate director Harish Gohil says: “The improvements in the equity markets are, in some ways, a mixed blessing. It is well recognised that bonus rates are still too high and need to come down but it is difficult to sell to consumers. It is bad enough when the markets are doing badly but to do that when markets are going up and you still have cutting to do is even harder.”

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