Rating outlook for UK life insurers is stable, Fitch says

The outlook for UK life insurers' long-term credit ratings was stable despite the impact of lower interest rates, a reflection of their strong capital positions, Fitch Ratings said.

Regulations under Solvency II requiring that insurers account for so-called 'longevity-risk' meant their capital ratios fell alongside declines in rates.

"S2 requires insurers to hold a risk margin for longevity risk, a requirement that increases significantly when interest rates fall, and an important consideration for annuity business."

Nevertheless, on an economic basis their annuity business were well-shielded from interest rate fluctuations because liabilities were well-matched with offsetting assets in terms of each one's duration profiles, the agency said.

"Low yields do not weaken the capital position of annuity business under Fitch's Prism factor-based capital model (Prism FBM), and are not a direct threat to UK life insurers' credit ratings."

"These strengths have enabled rated insurers to withstand the decline of the individual annuity market and will help them to absorb the potential disruption and costs from regulatory investigations and "Brexit"," Fitch said in a statement.