Record-breaking year predicted for UK life insurance in 2023: RBC Capital Markets
In a recent analysis by RBC Capital Markets, the UK life insurance industry is poised for a remarkable year in 2023, with projected volumes reaching approximately £50 billion, surpassing the previous record of £45 billion in 2019.
This surge is attributed to the anticipation of large transactions, including the recent announcements of jumbo transactions by Legal & General (LGEN) (£5 billion) and Rothesay (£4 billion).
The outlook remains optimistic, with expectations of breaking volume records again in the coming years, reaching £70 billion annually by 2025.
The sector is experiencing increased selectivity among insurers in pursuing opportunities, leading to more attractive profit margins. The returns for insurers are expected to rise, benefiting from supply/demand imbalances.
Insurers are becoming more disciplined in their approach to pricing, with evidence of tighter triage processes for new opportunities. Trustees are now attracting 2-3 fewer insurers to pitch per transaction due to heightened demand.
Bulk annuities continue to be the preferred choice for pension schemes, considered the ‘gold standard’ outcome for members.
Despite alternative options like ‘running on,’ commercial consolidators (superfunds), and third-party capital solutions, transferring benefits to insurers is favoured for the security they provide.
The demand for longevity risk remains supportive of the market, with reinsurers showing a strong willingness to accept this risk.
Longevity reinsurance pricing has experienced significant changes in the last 18 months, reaching historically low levels. This positive trend is attributed to reinsurer views adjusting for COVID-19 impacts on life expectancy improvements.
The report highlights the uncertainty in the long-term outlook for the impact of obesity medicines, such as GLP-1s, on life expectancy.
The adoption of these drugs by the NHS will play a crucial role in determining their influence. In the short term, no significant impact is anticipated.
As the industry gears up for a record-breaking year and future growth, stakeholders are closely monitoring these trends and adjustments, positioning themselves for a dynamic and evolving landscape in the UK life insurance sector, the report noted.
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