UK and France life insurance outlook negative due to COVID-19

AM Best has revised its market segment outlook on the UK and France’s life insurance markets to negative due to the coronavirus (COVID-19) pandemic.

The UK's outlook is changed because of the material uncertainty as to the severity of the impact on capital positions of the COVID-19-driven financial market volatility, pressure on earnings due to equity market declines and the low interest rate environment and increased risk of corporate bond default due to deteriorating economic conditions.

The key factors that have led to the change in outlook in France include the significant economic and financial headwinds, which are expected to negatively impact premium levels and asset valuations, as well as sustained pressure on results and solvency ratios stemming from the continued low interest rate environment.

AM Best also cited sensitivity to interest rate movements in France due to the high proportion of long-duration, euro-denominated business, and the increased risk of corporate bond default due to deteriorating economic conditions, as negative trends.

Meanwhile in the UK, the agency noted that the near-term bulk annuity pipeline is likely to be affected by market volatility, and defined contribution (DC) pension fund values will be depressed. It said that a higher allocation to illiquid assets is supporting investment yields, but is leading to higher investment risk and default and valuation uncertainty has increased for these assets.

The outlook further noted that assets and liabilities are generally well-matched by duration, reducing UK life insurers’ sensitivity to interest rate movements, and that UK life insurers generally display sophisticated enterprise risk management.