Sales of UK life and pensions have slumped across the board as consumers limit insurance and savings to focus dwindling disposable incomes on debt.
Fitch Ratings compared first half-year sales for 2008 with this year across six UK companies. The present value of new business premium fell 24% from £31bn to £23bn for Aviva, Friends Provident, Legal and General, Lloyds banking Group, Prudential and Standard Life. AXA and AEGON, which report sales on an annual premium equivalent (APE) basis, took tumbles of 17.7% and 22.5%, respectively.
"Sales have fallen across the market as consumers have cut back on purchasing insurance and savings, in order to channel more of their disposable income into reducing their mortgage burden," says David Prowse, Senior Director in Fitch's Insurance Group in London.
And lower sales figures represent only a partial reality - while they reflect how much business is coming into a company, they fail to show how much is leaving.
Net flow numbers published by AXA indicate in H109, AXA UK experienced a net outflow of £255m, and Standard Life's net inflow of £135m fell far short of its £1bn inflow in H108. Net outflows for the market in aggregate would point to people withdrawing savings to finance their living costs or to pay down their debts, reports Fitch Ratings.
In spite of an overall drop in sales, companies' ability to adapt to the new conditions mean some have fared better than others as the recession has impacted on different products differently.
Pension annuity sales are relatively resilient to the economy because they are bought by customers with pension pots that have to be converted to annuities on retirement, according to Fitch, with the steady flow of customers approaching retirement age providing maintaining sales to large annuity providers such as Prudential and L&G.
Product mix is key, and Fitch reports annuities are providing high margins for some insurers: "Many companies believe the higher yields that were available in the first half of 2009 on the corporate bonds that they bought to back annuity sales will translate into higher investment profits," Prowse notes.
Regulatory capital positions have proved resilient - despite falling financial markets and
Hard hit sales some companies' Q209 versus Q109 comparisons show signs of a possible bottoming out of the sales slump.
However, Fitch believes that UK life insurers' earnings will remain depressed as the impacts of the UK recession continue, and the agency's negative credit ratings outlook for the UK life sector remains in place.
