...Negative Fundamentals Unlikely to Move Ratings; Strong Solvency II Capital Expected The rating outlook for the UK life insurance sector is stable, indicating that most ratings are likely to be affirmed in the next two years. This is despite threats to profitability from further changes to legislation, government initiatives on pensions, and increased regulatory scrutiny of insurers. As announced in 2014, customers no longer have to buy an annuity with their pension pots. Fitch expects the annuity market to shrink by at least one-third as savers access their pensions as cash or via drawdown products instead. We expect sales to stabilise in 2016 at between 30% and 50% below the pre-2014 level. Major UK life insurers appear on track to report strong Solvency II (S2) capital after announcing substantial interim dividend increases. This capital strength reflects insurers' high-quality bond portfolios, duration-matching of fixed liabilities and limited exposure to unhedged equity risk. Additionally,...
