UK life insurers are holding their ground. Capital positions remain strong even as bulk annuity volumes slid in the first half of 2025 and profitability on new deals came under pressure, according to a fresh Fitch Ratings report.
Most Solvency II ratios hover around or above 200%. That’s still high, supported by steady capital generation and long-term interest rates that haven’t yet softened.
Fitch does see the ratios easing, since insurers keep committing more to private assets and running down their annuity pipelines.
IFRS shareholder equity dipped at many firms, not because of losses but due to outsized capital distributions. Growth in contractual service margins was sluggish as well, reflecting the drag from weaker sales and less profitable new business.
Bulk annuity flows tell the story. Volumes reached only about £10bn in 1H25, down from £15bn a year earlier.
Fewer mega-deals drove the fall, though the overall number of transactions rose, led by more activity in small schemes.
Some pipelines could shrink further, as well-funded pension plans opt to continue on their own rather than transfer risk.
Even so, Fitch projects volumes of roughly £40bn for 2025, down from £48bn in 2024, with mid- to long-term demand staying healthy as sponsors continue to de-risk.
Competition, thinner credit spreads, and lower volumes combined to squeeze new-business margins in the bulk annuity market. In-force profitability cushions the impact, but only to a point.
One risk looms larger: the rising share of illiquid assets, including private credit, in insurer portfolios. Regulators are watching closely.
Fitch says this year’s Life Insurance Stress Test, aimed at large bulk annuity writers, should shine more light on where firms are resilient—and where cracks could show.
