In a recent analysis by RBC Capital Markets, the UK life insurance industry is poised for an extraordinary year in 2023, with volumes projected to reach approximately £50 billion , surpassing the previous record of £45 billion in 2019.
This surge has been attributed to the anticipation of major transactions, including recent announcements of jumbo transactions at Legal & General (LGEN) (£5 billion) and Rothesay (£4 billion).
The outlook remains optimistic, with expectations that the volume will break records again in the coming years, reaching £70 billion annually by 2025.
The sector has experienced more choice among insurers to pursue opportunities, leading to more attractive profit margins. Insurers’ returns are expected to increase, benefiting from supply/demand imbalances.
Insurers are becoming more disciplined in their pricing approach, evidenced by tighter testing processes for new opportunities. Trustees now attract 2-3 fewer insurers to pitch per transaction due to high demand.
Fixed annuities continue to be the preferred option for pension schemes, considered the ‘gold standard’ outcome for members.
Despite alternative options such as ‘running,’ commercial consolidators (superfunds), and third-party capital solutions, the transfer of benefits to insurers is favored 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 over the past 18 months, reaching historically low levels. This positive trend is attributed to reinsurer views that adjust for the effects of COVID-19 on improving life expectancy.
The report highlights the uncertainty of the long-term outlook for the effect of obesity drugs, such as GLP-1, on life expectancy.
The adoption of these drugs in the NHS plays a key role in determining their influence. In the short term, no significant impact is expected.
As the industry prepares for a record-breaking year and future growth, stakeholders are closely monitoring these trends and changes, positioning themselves for a dynamic and evolving landscape in the UK life insurance sector, the report says.