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Fitch Summarises Reasons for UK Life Insurance's Negative Outlook

Reuters - UK Focus

(Repeat for additional subscribers)

April 24 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says UK life insurers face threats to profitability from recently announced government initiatives on pensions and a climate of increased regulatory scrutiny of how insurers treat customers. These are part of a summary of factors underlying its negative outlook for the UK life insurance sector published by Fitch today.

The potential consequences of these initiatives are negative for the sector's profitability but will vary from one insurer to another, according to business mix. However, there are unlikely to be material rating implications in the near term as rated insurers will be able to absorb the negative effects because they have diverse businesses and strong capital positions - important factors underpinning their credit ratings.

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The GBP12bn-a-year annuity market may shrink dramatically as customers will no longer have to use their pension pots to buy an annuity and many will choose to access their pensions as cash or via drawdown products instead.

"Among major annuity providers, Legal & General (LSE: LGEN.L - news) , Prudential (HKSE: 2378.HK - news) and Aviva (Other OTC: AIVAF - news) have the capability to take on more bulk-annuity business to fill the gap from reduced individual annuity sales," says David Prowse, Senior Director in Fitch's Insurance team. "The insurers most exposed to a severe decline in annuity business are those with a concentrated individual annuity focus, such as Just Retirement and Partnership (LSE: PA.L - news) ."

The government also announced a 0.75% cap on charges for funds that are default selections in pensions auto-enrolment schemes. "Even though the 0.75% charge cap applies only to pensions auto-enrolment default funds, it may add to downward pressure on fund charges generally as the consumer agenda gains momentum," says Mr. Prowse. "This would add to the growing list of threats to life insurers' earnings."

The 'UK Life Insurance Dashboard 1Q14' is available at www.fitchratings.com or by clicking on the link below.

Link to Fitch Ratings' Report: UK Life Insurance Dashboard 1Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746797