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S&P forecasts stable market for 12 months

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

The Life Insurance Industry Risk Analysis report, the first of it kind carried out by S&P, says 85 per cent of life ins- urers in the UK currently get a stable rating.

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. It argues that changes implemented by the FSA, inc-luding Solvency II, are positive for the long-term credit qual-ity 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. Last year, 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 main player in the life and pension market last year, generating 12 per cent of market share. Standard Life followed with 9.5 per cent, with 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, costs and balance sheets to protect and enhance earnings.”

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