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Fitch : UK life insurers in good shape

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Fitch Ratings says in a new comment that the strong results reported by UK life insurers for 2010 puts them in good shape as they continue to prepare for sweeping changes to how they are regulated and how their products are distributed.

The UK life 2010 results season has been characterised by stronger capital, higher IFRS profits and upbeat messages from CEOs announcing dividend increases. There has also been a striking emphasis on cash generation in the 2010 results announcements.

“While it has always been important for life insurers to generate cash to cover their costs, debt-servicing and dividends, this looks like a concerted effort by the sector to show how its business can and does generate cash in the shorter term,” says David Prowse, Senior Director in Fitch’s Insurance team. “This is an important consideration for potential investors in the industry who might naturally assume otherwise, given the long-term nature of life insurance. It may also be part of a wider move by insurers to appear more simple and transparent to investors, in response to longstanding criticism of the complexity of the financial data they present.”

The UK life sector is preparing for an unprecedented combination of reforms that will transform regulation and distribution, with implications for capital management, product design and pricing. Foremost among these are Solvency II and the Retail Distribution Review. Fitch expects these changes to cause some disruption to the UK life market but expects major insurers to adapt successfully to the new landscape, meaning that the agency maintains its stable rating outlook for the sector.

Source : Fitch Ratings Press Release