Brexit and COVID weigh heavily on prospects for UK life sector: AM Best

The UK life insurance sector faces prolonged economic uncertainty due to Brexit and the COVID-19 pandemic, according to  AM Best.

Both Brexit and the pandemic are likely to cause increased financial market volatility, AM Best warned, which could weigh on insurers' financial positions and earnings.

Meanwhile, interest rates look set to remain at depressed levels, creating challenges for insurers in generating sufficient returns from their investment portfolios to cover their liabilities.

The rating agency noted increasing allocations to illiquid assets, as investors look to maximise returns in the low interest rate environment, as well as the heightened risk of a corporate bond default due to the pandemic-driven downturn. Both increase the risk outlook for the sector, it said.

AM Best stressed there are also opportunities for the sector, with carriers having resilient solvency levels and technology improving their ability to adapt to the changing needs of clients. Brexit could also allow the regulator to adapt its regime to better suit the needs of the UK sector, it added.

AM Best said this balance of risks and opportunities led it to maintain a negative outlook on the UK life insurance segment.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.