Moody’s Ratings has released its latest outlook for the UK life and property and casualty (P&C) insurance sectors, maintaining a stable outlook for both markets.
The agency notes that while macroeconomic pressures may dampen sales of discretionary life protection and savings products, growth in the pensions market and steady demand for mandatory P&C products are expected to help sustain insurers’ revenues. Persistently high interest rates are also cited as a factor supporting investment income for insurers.
Moody’s projects that UK insurers’ revenues will remain steady in 2025, with growth anticipated in 2026. This outlook is underpinned by pension auto-enrolment and continued sales of compulsory P&C products.
“UK interest rates remain comparatively high, benefiting investment income, especially for life insurers with long-dated assets,” the report notes.
The life sector continues to benefit from strong demand for bulk purchase annuities (BPAs), which support earnings. However, Moody’s points out that margins are under competitive pressure. The report also highlights that while pension transfers are bolstering the life sector, they are increasing asset risk.
The UK bulk annuity market, however, has seen a notable slowdown in the first half of 2025. Life insurers wrote about £10 billion in bulk annuities during this period, down from £15 billion in the same period last year.
In the P&C segment, pricing in both commercial and personal lines has passed its peak for the current cycle. Motor insurance pricing, in particular, saw a sharp decline in 2025. Moody’s notes that the combined ratio remains above 100% and warns that it may deteriorate further if competitive pressures persist and consolidation does not occur.
The competitive landscape in the UK insurance market has resulted in buyer-friendly conditions for most lines, with rates falling between -10% and -20% or more in the second quarter of 2025. This trend, which began in late 2024, has allowed organisations to negotiate additional benefits and expand coverage, though exceptions remain in motor and US-exposed casualty risks where insurer appetite is constrained.
UK insurers’ capital positions remain robust, but Moody’s does not expect further improvement in solvency ratios. The agency suggests that surplus capital could be directed towards mergers and acquisitions or returned to shareholders.
The report observes that reserves are being rebuilt after recent years of weak motor margins and higher-than-expected claims inflation, which eroded reserve releases. Moody’s expects stronger reserve releases to support profits going forward.
Natural catastrophe costs are highlighted as a continuing challenge, with 2024 marking a record year for weather-related claims. High reinsurance costs remain a concern for the sector.
Regulatory scrutiny of the UK insurance market remains elevated, though Moody’s does not anticipate significant regulatory changes in 2026. The Financial Conduct Authority’s review of the advice and guidance boundary is identified as a potential driver for increased demand for retirement products.
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