FINANCIAL STRENGTH DISPARITY AMONG UK INSURERS EXPECTED TO WIDEN AS COMPETITION INTENSIFIES, SECTOR RESTRUCTURING CONTINUES, ACCORDING TO MOODY'S
London, February 17, 1998 -- "Strong sales of life and pension products, rising investment markets and unprecedented levels of corporate restructurings have together bolstered the outlook of the UK life industry" reports Moody's in its annual report of the sector, but also cautions that "intensifying competition and poor performing investment markets could adversely affect the sector, especially the smaller players." The principal highlights of the report are the following:
The gap in financial strength between stronger and weaker players will widen and be reflected in Moody's ratings of the sector. A downturn in investment markets could have a severe impact, especially on smaller companies that are using all their resources to provide competitive investment returns.
ú The sector has been boosted by continued growth in annual and single premium business throughout 1997, especially pensions and savings products. This growing demand has been helped by high performing stockmarkets, which have had a positive impact on life insurers' solvency margins, and demographic reasons including increasing demand for retirement and welfare provision.
ú Industry restructuring, including demutualisations (eg Norwich Union and Scottish Amicable) and mergers/acquisitions are expected to continue and should further improve the efficiency of the sector, although as competition increases so margins will come under more pressure.
ú The sector - generally more fragmented than others in Europe -- is likely to develop into a smaller number of large companies as players seek to achieve economies of scale or broaden distribution. However as the sector becomes characterised by fewer, but larger, companies, competition will remain fierce.
ú According to Moody's analysts "Capital will continue to be the key resource for companies.......well capitalised companies are already implementing pricing strategies that are too aggressive for their smaller competitors." Capital will be deployed both to protect against financial distress and as a resource with which to write new business. Moody's expects mutual life companies to continue to raise hybrid capital (eg subordinated debt) as companies continue to struggle to generate capital from operations.
Moody's rates the following UK Life Insurers;
Company Insurance Financial Strength
Clerical Medical Investment Group, Ltd. (Long-term Fund) Aa2
Co-operative Insurance Society Limited Aa3
Commercial Union Life Assurance Company, Ltd. A1
Eagle Star Life Assurance Co., Ltd. (Long-term Fund) A3
Equitable Life Assurance Society Aa3
Friends' Provident Life Office A2
General Accident Life Assurance Ltd. Aa2
General Accident Linked Life Assurance Ltd. Aa2
Guardian Assurance plc A2
Legal & General Assurance Soc., Ltd. (Long-term Fund) Aa1
National Provident Institution A2
Norwich Union Life & Pensions Ltd. Aa3
Pearl Assurance plc (Long-term Fund) Aa2
Prudential Annuities Limited Aa1
Prudential Assurance Company Ltd. (Long-term Fund) Aaa
Royal Life Insurance Ltd. (Long-term Fund) A1
Royal London Mutual Insurance Society Ltd. Aa3
Scottish Amicable Life Assurance Society Ltd A1
Scottish Equitable plc (Long-term Fund) Aa2
Scottish Life Assurance Company A2
Scottish Mutual Assurance plc (Long-term Fund) Aa3
Scottish Provident Institution A3
Scottish Widows Fund & Life Assurance Society Aa2
Standard Life Assurance Company Aaa
Sun Alliance and London Assurance Co. Ltd. (Long-term Fund) A1
Sun Life Assurance Society plc (Long-term Fund) Aa3
A senior panel of insurance analysts at Moody's will be holding a briefing on +The outlook for UK Life Insurance' at 2, Minster Court, Mincing Lane, London EC3R 7XB on Thursday 5 March between 10am and 12 midday. To attend, or for a copy of the report, please call 0171 772 5368.
NOTE TO JOURNALISTS: For a copy of this Moody's report, please contact Donna Gee in New York (212) 553-0376, Ed Bowden in London (171) 772-5454, Juan Pablo Soriano in Madrid (341) 310 1454, Katrina Braund in Sydney (612) 9270 8111, Mauricette Salque in Paris (331) 53 30 10 20, Juergen Berblinger in Frankfurt (4969) 242 840, Velvet Yoshinami in Tokyo (813) 3593 0734, Hilary Parkes in Toronto (416) 214-1635, Edward Young in Hong Kong (8522) 509 0200, Patrick Winsbury in Singapore (65) 320 8330 or Christiana Aguiar in SÆo Paulo (5511) 3043-7186.
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