UK life insurance sector outlook worsening for 2021

Written by Adam Cadle

24/11/2020

The UK life insurance sector outlook for 2021 is worsening, driven by lower interest rates in 2020 and substantial downside risks to interest rates and credit markets in 2021, Fitch Ratings has said.

"We expect that an 'even-lower-for-longer' interest rates environment will add pressure to insurers' capital positions through increases in Solvency II capital requirements and risk margins," the ratings agency said.

"Lower interest rates could also reduce insurers' profitability through lower spread margins, lower fee income on investment products and lower investment returns earned on invested premiums.

"We believe that insurers' credit exposure to defaults and downgrades in their fixed-income investment portfolios remain a key risk in 2021, due to the ongoing economic uncertainties related to the coronavirus pandemic. However, there were only a marginal number of downgrades in the insurers' investment portfolios in 2020, driven by the overall resilience of credit markets and limited exposure to the industries that suffered most from pandemic-related lockdowns, such as transport and hospitality."

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