UK life insurance Q3 new business sales remain subdued

The recent UK Q3 life insurance new business sales figures illustrate some of the negative pressures on the UK Life insurance industry, according to a special comment published by Moody's. Although reduced new business sales, whether measured on an Annual Premiums Equivalent (APE) or a Present Value of New Business Premiums (PVNBP) basis, affords some near-term benefits in the form of lower new business cashflow strains, the longer term negative implications — damage to franchise and restrained long-term earnings generation — outweigh any immediate benefits.
"Whilst year-to-date new business life insurance sales have declined by, on average, 22% amongst the larger UK insurers, more surprising are the quarter-on-quarter declines" stated David Masters, Moody's analyst and author of the report. He noted, however, that both seasonal effects and other large one-off transactions (such as Bulk Purchase Annuities) have the potential to artificially distort discrete quarterly results.
Moody's further noted that the trend in single premiums business continues to fare worse than regular premium business, a factor which Moody's considers to be driven by a combination of macro-economic issues and the taxation-advantaged nature of certain regular premium products.
Looking ahead, Moody's considers the outlook for the UK life insurance sector to remain negative, driven, in no small part, by our expectation that UK new business sales will remain subdued over the near term as a result of the likely slow economic recovery, reducing long-terms earnings generation and potentially leading to franchise value erosion.