Life Insurance firms post steady results despite economic crisis
A survey of life insurance companies’ performance over the last year has shown that life insurance companies are still performing well, despite the current economic crisis which could see the UK enter the third dip of their ongoing recession.
The crisis in the Eurozone looks set to rage on, which will in turn affect the UK who do a lot of trade with countries in Europe. With Spain looking more and more likely to need a bailout, and Greece permanently on the verge, there is little confidence in the markets which can often spell bad news for life insurance companies.
The Money Management annual survey shows that actually life insurance companies are coping well, although changes to the rules regarding taxation for life insurance, and the new European rule changes which will take affect over the next few years could make quite a difference.
The results should also be taken with a pinch of salt after Legal and General revealed they didn’t have the resources to complete the survey, meaning the results were missing out one of the biggest insurers in the UK.
The results did include figures from Friends Life, who were AXA Sun Life, and Phoenix Life, who were created after the merger of London and Phoenix.
The survey revealed that many insurers were doing well but were worried about the new European rules which are set to come into effect in the next few years, which will require insurance companies to hold more money in cash reserves.
The rules are part of the Solvency II review which has been created to make sure there is enough cash to make payouts in insurance companies around Europe.
The ruling, which comes into effect in the beginning of 2014, will see the value of cash reserves needed by insurers affected by the level of risk of their investments, with the plan designed to make sure no insurance company get themselves into financial trouble they can’t get out of.
The problem for insurers is that cash reserves pay very little interest, in comparison with the investments they have made, which could dent the profits they make in the future, and more worryingly increase the price paid by life insurance customers.