Key Takeaways
- Despite the remaining uncertainty about how the COVID-19 pandemic will evolve, and the potential for an abrupt switch to a bare-bones trade agreement with the EU after Brexit, we see broadly stable trends for the U.K. insurance industry in 2021.
- The industry's strong capital adequacy should be sufficient to help it weather the short-term effect of the insurance or investment losses arising from these events.
- Although we expect insurers' top lines and earnings to recover during 2021-2022, our assumptions remain sensitive to prolonged lockdowns and further disruptions in investment markets. Most U.K. insurers are rated in the 'A' category and have stable outlooks, indicating that we do not expect a rating action within the next two years.
Although S&P Global Ratings anticipates that profitability at rated U.K. insurers will be dented in 2020 (as detailed in table 2 of the appendix) across the industry we expect profitability to normalize in 2021 and that the impact on ratings will be limited. There is still uncertainty regarding the evolution of the pandemic, and the U.K.'s abrupt switch to a bare-bones trade agreement with the EU from Jan. 1, 2021.
In our view, insurers' investment exposure to pandemic-fueled market volatility will remain their main source of loss. We regard insured losses from the pandemic in 2020 and 2021 as an earnings event for the industry, rather than a capital event. In September, the Association of British Insurers (ABI) estimated COVID-19-related industry losses for the U.K. insurance industry (excluding Lloyd's) would be £1.7 billion. Based on this, and ABI's industry data, we estimate that in 2020 pandemic-related claims--for example, for business interruption, travel insurance, and contingency type policies--could add 6%-10% percentage points to the loss ratios of non-life insurers (excluding Lloyd's and the London market).
Life insurers were relatively unaffected by pandemic claims. They received 7,000 COVID-19-related life insurance claims and paid out £90 million; this equates to about 0.04% of the total claims incurred by the life insurance industry in 2018, the latest year for which ABI data is available.
Despite an abundance of downside risks, U.K. insurers have proven their resilience during the first wave of the COVID-19 pandemic. Financial markets have also recovered significantly from the depths they reached in March and April 2020, blunting the impact on profitability and capitalization of their initial plunge. As a result, investment returns and the value of investments are unlikely to weigh materially on U.K. insurers' earnings or capitalization levels in 2020 or 2021.
As our key metrics forecasts in table 2 show, we expect top lines and earnings to recover during 2021-2022. That said, our assumptions remain sensitive to prolonged lockdowns and further disruptions in investment markets. S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
Brexit remains a source of uncertainty--a basic no-tariff deal between the U.K. and the EU after the Brexit transition period ends on Dec. 31, 2020, may weigh on the country's economic recovery. We anticipate that outlook revisions, rather than widespread downgrades, would be more likely to occur within the U.K. insurance sector, in the event of a no-deal or bare-bones deal that may hinder economic recovery.
Material capital buffers and prudent investment exposures have helped insurers to weather the impact of financial market dislocations earlier this year, unexpected claims payouts, and weaker macroeconomic conditions. Discretionary dividend suspensions and debt raises have also helped shore up capital and liquidity positions.
S&P Global Ratings rates 14 U.K.-based insurance groups, of which 12 are rated 'A-' or higher and all but two have a stable outlook. This supports our view that creditworthiness in the market as a whole is stable. Most entities have robust capital buffers and solvency positions.
Chart 1
Chart 2
Trial By Storm For Property/Casualty Underwriters
We expect that the U.K. property/casualty (P/C) industry's overall level of profitability will be tested in 2020, undercut by storms, COVID-19 claims, financial markets volatility, and the recessionary environment. Profits in 2021 should be more resilient, despite ongoing uncertainty regarding the pandemic and the changes after Brexit. Insurers are likely to concentrate ever more closely on underwriting profitability.
Early in 2020, three storms occurred in quick succession: Ciara (Feb. 8-9), Dennis (Feb. 15-16), and Jorge (Feb. 28-29). The sustained periods of heavy rainfall caused widespread flooding across much of England and Wales, and flooded about 4,000-5,000 properties. It was a difficult start to the year for insurers, with significant flooding hitting large parts of the country. Early estimates of the claims from these events were around £360 million--we estimate that these events, combined, represent a 1-in-10-year event.
Chart 3
Since then, the advent of COVID-19 has brought with it further bad news and additional claims for U.K. P/C writers. Most players have reported manageable short-term losses due to the pandemic. For example, at the end of the first half of the year, reported pandemic-related claims, net of reinsurance, totaled £195 million at Aviva PLC and £110 million at Royal & Sun Alliance Insurance PLC (RSA). Results from the Lloyd's of London insurance market aggregate those of more than 90 syndicate members. The market reported pandemic-related claims of £2.4 billion, adding 18.7% percentage points to its overall combined ratio of 110.4% in the first half of 2020. (Lower combined ratios indicate better profitability. A combined ratio of greater than 100% signifies an underwriting loss.) Lloyd's estimates that total losses will ultimately reach £3.0 billion, including further losses arising from event cancellation and credit. Hiscox Insurance Co., one of Lloyd's syndicates, reported a $232 million loss at the end of the first half of 2020.
COVID-19-related losses may lag, affecting more than just the 2020 results, because some policies written before the pandemic will remain on-risk into 2021 and any reported losses will hit insurers' results next year. In addition, the Prudential Regulation Authority's recent review on reserving and exposure management highlighted evidence that reserves were weakening before the pandemic. These factors, combined with the uncertainty and complexity of estimating ultimate losses connected to the pandemic may keep loss ratios for P/C insurers elevated in 2021.
The recent court ruling regarding the Financial Conduct Authority's (FCA) test case presented business interruption underwriters with an additional, if manageable, challenge. As of September 2020, RSA estimated that its extra costs, net of reinsurance, would be less than £85 million, or £104 million on a gross basis; Hiscox estimated that its extra costs, net of reinsurance, would be less than £100 million. The FCA's Supreme Court appeal hearing started on Nov. 16, 2020, and no decision is expected for some weeks. We believe the final ruling in favor of the policyholders will not dent the capitalization of those U.K. players affected.
Conversely, lockdowns and extended periods of working from home and social distancing have reduced car journeys by around two-thirds and are expected to result in lower motor claims. Home and property insurance claims will also decline because the reduction in unattended residential properties has led to lower burglary levels, supporting underwriting results.
The FCA's recent proposal on pricing of motor and home insurance policies may also compress margins, in the short term. The proposal would prevent insurers from gradually increasing renewal pricing to consumers over time (known as "price walking"). The FCA estimates that the policy would save consumers £3.7 billion over 10 years. However, we expect the market will react quickly to the changes by increasing prices on new business. This would limit the impact of the change on underwriting earnings and profitability, in our view. For the groups we rate that write U.K. home and motor business, these lines are part of diversified product offerings, which will reduce the impact on profitability further.
U.K. Life Insurers Will Endure, Despite An Abundance Of Downside Risks
We anticipate that U.K. life insurers will outlast the current environment without a deterioration in their capital and financial positions. That said, the industry could take an economic and financial hit from the combined effect of the COVID-19 pandemic and Brexit. The potential implications prompted us to revise down our estimated growth and profitability for the industry in 2020.
In 2019, the industry reported a record £43.8 billion in bulk annuities deals, after strong years in 2018 (£24.2 billion) and 2017 (£12.3 billion). As of the first half of 2020, buy-in and buy-out deals worth £12.6 billion had been written, mainly from three players: PIC Insurance Group Inc., Aviva PLC, and Legal & General Group PLC (L&G) (source: Lane Clark & Peacock LLP, "Pensions De-Risking Report 2020," October 2020) and we expect deals written by year-end to total more than £25 billion.
Although the U.K. equity release mortgage sector is only a small part of the overall life industry, it has also witnessed a resurgence in recent years. The sector has almost quadrupled in the past decade. It unlocked value of £3.92 billion in 2019, far higher than the £945.97 million it unlocked in 2009.
Chart 4
Chart 5
The U.K. Faces A Steep Climb To Recovery
COVID-19 has thrust world economies into an uncertain and tumultuous environment. The U.K. authorities have deployed a range of fiscal, monetary, and regulatory tools to mitigate the economic fallout of the nation's sharpest recession to date. We project that the U.K. economy will contract by 9.7% in 2020, before growth rebounds to 7.9% in 2021.
Modest growth expectations in 2022-2024 mean that the economy will operate below pre-pandemic levels until at least 2024. However, fresh restrictions to keep the emerging second wave of COVID-19 infections in check, combined with an abrupt switch to a bare-bones trade agreement with the EU in 2021, are likely to curb the recovery's momentum (see "Economic Research: The Second Wave And Brexit Will Test The U.K. Recovery," published on Oct. 1, 2020).
The shift to a new post-Brexit regime will occur when the economic recovery from the pandemic is still fragile. Our base-case assumption is that the EU and U.K. will negotiate a core free trade agreement similar to the one Canada has with the EU, and start trading under this new regime after the transition period ends. However, the onset of the pandemic has presented the U.K. government with more pressing challenges. It is not yet clear whether a favorable U.K.-EU trade deal will be negotiated in time.
Under our base-case scenario, we do not anticipate that U.K. insurers' business risk profiles will see major changes after the U.K. leaves the EU. Most insurers have already incorporated subsidiary companies within the European Economic Area (EEA) to facilitate their transitions to a post-Brexit world.
If we lowered the long-term sovereign credit rating on the U.K. then we would review whether the ratings on Aviva PLC, L&G Group PLC, and Prudential PLC were resilient to our sovereign stress scenario. If we lowered the long-term rating on the U.K., we could also impose additional capital requirements in our capital model because of the potential lower credit quality of insurers' bond portfolios. A sovereign downgrade could also have long- and short-term effects on financial markets, such as increased equity volatility and collateral requirements or reduced liquidity.
The U.K.'s FCA is also preparing for all scenarios related to Brexit to minimize disruption, such as allowing firms to continue to access U.K. and EU trading venues in the absence of mutual equivalence. Chancellor of the Exchequer Rishi Sunak announced on Nov. 9, 2020 that the U.K. would be granting a package of equivalence decisions to European Economic Area states, including the EU states. These will allow non-U.K. companies to operate in the U.K. immediately after the transition period--that is, when passporting ends on Dec. 31, 2020--without causing any disruption to their businesses.
That said, if no deal is agreed between the EU and the U.K., the long-term implications for the U.K. economy could threaten income levels, growth prospects, government finances, external financing prospects, and financial markets. These important effects may have ripple effects for the insurance industry, which is correlated with economic developments.
Chart 6
M&A In The U.K. Insurance Industry Will Continue
The U.K. insurance market remains mature and developed, and most changes to it stem from major merger and acquisition (M&A) activity, or immediate disruptors.
In our view, the ongoing cost pressure, in a competitive environment, combined with the need for technological innovation and the search for synergies and economies of scale, is driving a surge in M&A in the U.K. insurance markets (see table 8 in the appendix).
A few smaller, bolt-on transactions have already taken place, or are being completed despite the pandemic and the fragile global economy. In addition, some large-scale transactions could yet take place in 2020, such as those involving Liverpool Victoria Financial Services Ltd., Aviva, and RSA. All these groups are either undergoing a strategic review of their operations or are in transactional talks with potential counterparties. For more information, see:
- Aviva PLC's French Subsidiaries Downgraded To 'A+'; Outlook Negative; All Other Ratings Affirmed With Stable Outlook, published on Sept. 16, 2020
- Bulletin: The Outcome Of U.K. Insurer LVFS' Ongoing Strategic Review Will Be A Significant Rating Consideration, published on Oct. 5, 2020
- RSA Insurance Group PLC Ratings Placed On CreditWatch Negative On Potential Acquisition By Consortium, published on Nov. 9, 2020
Most bolt-on acquisitions or disposals have a neutral effect on our assessment of an insurer's business risk profile and rating. Larger scale transactions are assessed individually.
The Pandemic Proved Capital Buffers Were Resilient
The U.K. insurance sector entered 2020 with healthy technical margins and robust capital positions. On Dec. 31, 2019, overall capital for our rated U.K. portfolio, measured using our capital model, exceeded the expected threshold for the 'AAA' level by 15%, the 'A' level by 35%, and the 'BBB' level by 67%. We forecast that the industry will continue to exceed these thresholds until 2022, but by a sparser margin.
When we compare U.K. life and non-life players, we see stark differences in the capital adequacy levels they maintain. At the 'AAA' level, life insurers held average redundancies of 24%, while non-life players held just 3%. Despite this difference, we consider the sector's capital buffers will be sufficient to withstand the fallout from losses related to the pandemic as well as Brexit and the macroeconomic disruptions resulting from these events over the short-to-medium term.
We applied a stress test to help us judge the resilience of U.K. insurers' capital positions. Under the scenarios we ran, we estimate that 40% of the U.K. insurance industry's capital buffer entering 2020 could be wiped out. Ratings migration was the largest single factor in consuming the buffer (see "Down But Not Out: Insurers' Capital Buffers Are Proving Resilient In The Face Of COVID-19, Sept. 22, 2020).
Chart 7
Chart 8
Chart 9
Capitalization Appears Resilient Under Solvency II
The unprecedented turmoil in investment markets in 2020 had a knock-on effect on U.K. insurers' solvency positions. They remedied the impact, in part, by raising debt (see chart 11), and suspending dividend payments. In addition, global financial markets have seen a general recovery since March 2020.
Chart 10
As the U.K.'s transition period comes to an end, the U.K. government has launched a review of the regulation: "Solvency II: Call For Evidence." It is soliciting industry participants' views on various areas of potential reform. This first stage of the process opened in October 2020 and will last until Jan. 19, 2021. We believe the U.K.'s ability to retain full equivalency with Solvency II will depend on how closely aligned the future U.K. regulatory regime will remain with the current framework and on the characteristics of the post-Brexit relationship between the U.K. and the EU.
Strong Credit Quality Preserves Insurers' Access To Debt Markets
U.K. insurers accelerated their issuance in 2020, partly to strengthen their levels of capital and liquidity in an uncertain environment. U.K. insurers issued £8.4 billion in debt between Jan. 1 and Oct. 31, 2020, up from £6.2 billion issued in 2019. Insurers in general benefit from high credit quality--only a few of our rated European insurers have outstanding debt rated 'BBB-' or below.
Chart 11
Appendix
Table 1
Table 2
| Key Metric Trends At A Glance | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Reported performance for 2018 and 2019 and S&P Global Ratings' forecasts for 2020 and 2021 | ||||||||||
| 2021f | 2020f | 2019a | 2018a | |||||||
| Aviva Group | ||||||||||
| Gross premium written (mil. £) | >28,000.0 | >28,000.0 | 31,243.0 | 28,659.0 | ||||||
| Net income (mil. £) | >1,500.0 | >1,500.0 | 2,663.0 | 1,687.0 | ||||||
| Net combined ratio non-life (%) | 97.0-99.0 | 97.0-99.0 | 97.5 | 97.2 | ||||||
| EBITDA fixed charge coverage (x) | >5.0 | >5.0 | 9.4 | 6.1 | ||||||
| Financial leverage (%) | 30.0-32.0 | 32.0-34.0 | 33.6 | 35.0 | ||||||
| S&P Global Ratings capital adequacy | Very strong | Very strong | Excellent | Very strong | ||||||
| Ecclesiastical Group | ||||||||||
| Gross premium written (mil. £) | ~460.0 | ~430.0 | 425.9 | 393.9 | ||||||
| Net combined ratio non-life (%) | 92.0-94.0 | 94.0-96.0 | 87.9 | 84.6 | ||||||
| EBITDA Fixed charge coverage (x) | ~4.0 | ~0.0 | 3.3 | 4.7 | ||||||
| Return on revenue (%) | ~8.0 | ~0.0 | 9.6 | 16.4 | ||||||
| Return on shareholders' equity (%) | ~2.0 | ~0.0 | 9.5 | 2.5 | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Excellent | ||||||
| Flood Re Group | ||||||||||
| Gross premium written (mil. £) | ~36.0 | ~35.0 | 34.0 | 32.0 | ||||||
| Main levy income (mil. £) | 180.0 | 180.0 | 180.0 | 180.0 | ||||||
| Net income (mil. £) | 80.0-90.0 | 80.0-90.0 | 110.0 | 110.0 | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Extremely strong | ||||||
| Hiscox Group | ||||||||||
| Gross premium written (mil. $) | ~4,400.0 | ~4,200.0 | 4,031.0 | 3,778.0 | ||||||
| Net income (mil. $) | 150.0-200.0 | (200.0)-(50.0) | 48.9 | 117.9 | ||||||
| Net combined ratio non-life (%) | 95.0-97.0 | 100.0-105.0 | 105.7 | 94.8 | ||||||
| Fixed charge coverage (x) | >4.0 | ~(5.0) | 0.8 | 6.1 | ||||||
| Financial leverage (%) | ~30.0 | ~30.0 | 26.9 | 27.6 | ||||||
| Return on revenue (%) | >6.0 | (7.0)-(2.0) | (0.6) | 8.9 | ||||||
| Return on shareholders' equity (%) | >6.0 | (9.0)-(4.0) | 2.2 | 5.1 | ||||||
| S&P Global Ratings capital adequacy | BBB | BBB | BBB | AA | ||||||
| Legal & General Group | ||||||||||
| Gross premium written (mil. £) | >12,000.0 | >12,000.0 | 15,203.0 | 13,253.0 | ||||||
| Net income (mil. £) | >1,400.0 | >1,400.0 | 1,810.0 | 1,808.0 | ||||||
| EBITDA fixed charge coverage (x) | >8.0 | >8.0 | 11.6 | 10.6 | ||||||
| Financial leverage (%) | <40.0 | <40.0 | 36.7 | 38.7 | ||||||
| Return on shareholders' equity (%) | >15.0 | >15.0 | 20.4 | 22.7 | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Excellent | ||||||
| Liverpool Victoria Group | ||||||||||
| Life: PVNBP new business margin (%) | >1.0 | >1.0 | 1.0 | 1.0 | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Excellent | ||||||
| Return on shareholders' equity (%) | <1.0 | <1.0 | 12.7 | (0.2) | ||||||
| Net income (mil. £) | <0.0 | <0.0 | 151.0 | (2.0) | ||||||
| Lloyd's | ||||||||||
| Gross premium written (mil. £) | ~39,000.0 | ~37,000.0 | 35,905.0 | 35,527.0 | ||||||
| Net income (mil. £) | ~2,000.0 | ~0.0 | 2,532.0 | (1,001.0) | ||||||
| Net combined ratio non-life (%) | ~95 | ~105 | 102.1 | 104.5 | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Very strong | ||||||
| Fixed charge coverage (x) | ~25.0 | <0.0 | 27.5 | (12.1) | ||||||
| Financial leverage (%) | ~3.0 | ~3.0 | 3.1 | 2.8 | ||||||
| M&G Group | ||||||||||
| Fixed charge coverage (x) | >8.0 | >8.0 | 9.0 | 14.0 | ||||||
| Financial leverage (%) | ~41.0 | ~41.0 | 41.0 | 5.0 | ||||||
| Return on shareholders' equity (%) | >10.0 | >10.0 | 16.0 | N/A | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Extremely Strong | ||||||
| NPA Insurance | ||||||||||
| Gross premium written (000s £) | 12,360.0 | 12,000.0 | 6,427.6 | 6,555.6 | ||||||
| Net income (000s £) | 1,000.0 | (1,500.0) | 1,073.9 | 554.3 | ||||||
| Return on shareholders' equity (%) | 5.0 | (7.0) | 5.7 | 3.0 | ||||||
| Net combined ratio non-life (%) | 95.0 | 125.0 | 104.7 | 78.3 | ||||||
| RSA Group | ||||||||||
| Net premium written (mil. £) | ~6,400.0 | ~6,300.0 | 6,417.0 | 6,470.0 | ||||||
| Net combined ratio non-life (%) | 94.0-96.0 | 93.0-96.0 | 96.7 | 98.3 | ||||||
| EBITDA fixed charge coverage (x) | ~10.0 | ~10.0 | 9.1 | 10.1 | ||||||
| Return on revenue (%) | ~8.0 | ~5.0 | 5.0 | 8.8 | ||||||
| Return on shareholders' equity (%) | ~8.0 | ~5.0 | 3.9 | 8.9 | ||||||
| S&P Global Ratings capital adequacy | BBB | BBB | BBB | BBB | ||||||
| Royal London Mutual Group | ||||||||||
| Net income (mil. £) | 100.0-150.0 | <0.0 | 225.0 | (48.0) | ||||||
| Life new business margin (%) | ~2.0 | ~2.0 | 2.5 | 2.5 | ||||||
| Total new business Margin (%) | >1.5 | >1.5 | 1.7 | 1.8 | ||||||
| Fixed charge coverage (x) | >4.0 | <4.0 | 10.8 | N.M. | ||||||
| St James's Place Group | ||||||||||
| Net income (mil. £) | >140.0 | >50.0 | 147.0 | 174.0 | ||||||
| Reported surrender rates (%) | ~4.0 | ~4.0 | 4.0 | 4.0 | ||||||
| Fixed charge coverage (x) | >18.0 | >4.0 | 19.0 | 22.0 | ||||||
| Financial leverage (%) | ~40.0 | ~40.0 | 38.0 | 34.0 | ||||||
| S&P Global Ratings capital adequacy | Excellent | Excellent | Excellent | Excellent | ||||||
| Scottish Widows Group | ||||||||||
| Gross premium written (mil. £) | N/A | >9,500.0 | 9,320.0 | 8,794.0 | ||||||
| Net income (mil. £) | 400.0 | 260.0 | (21.0) | 389.0 | ||||||
| EBITDA fixed charge coverage (x) | 5.9 | 4.3 | 1.8 | 5.1 | ||||||
| Financial leverage (%) | 38.3 | 39.5 | 37.1 | 34.5 | ||||||
| Return on shareholders' equity (%) | N/A | >20.0 | (0.7) | 9.6 | ||||||
| S&P Global Ratings capital adequacy | N/A | Excellent | Very Strong | Excellent | ||||||
| Unum Group (U.K. operations only) | ||||||||||
| Gross premium written (mil. £) | 480.0 | 480.0 | 483.0 | 456.0 | ||||||
| Net income (mil. £) | >30.0 | >15.0 | 75.0 | 14.0 | ||||||
| Return on Equity (%) | >6.0 | >3.0 | 15.7 | 2.7 | ||||||
| S&P Global Ratings capital adequacy | Very Strong | Very Strong | N/A | Very Strong | ||||||
| a--Actual. f--Forecast. N/A--Not applicable. N.M.--Not meaningful. Data as of Oct. 31, 2020. 2018 capital adequacy is as per old criteria nomenclature. Based on most recently published full analysis. | ||||||||||
Table 3
| Peer Group 1: U.K. Life Insurance Peers With Strongest FSRs Without Support | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Company Name | Legal & General Group PLC | Aviva Group | M&G Group | Scottish Widows Ltd. | ||||||
| Sector | Life insurance | Life insurance | Multiline insurer | Life insurance | ||||||
| Financial strength rating | AA-/Stable | AA-/Stable | A+/Stable* | A/Negative | ||||||
| Holding company rating | A/Stable | A/Stable | A/Stable | N/A | ||||||
| Business risk profile | Very strong | Very strong | Strong | Strong | ||||||
| IICRA score | Low risk | Low risk | Low risk | Low risk | ||||||
| Competitive position score | Very strong | Very strong | Strong | Strong | ||||||
| Financial risk profile score | Strong | Strong | Very strong | Strong | ||||||
| Capital and earnings score | Strong | Strong | Very strong | Strong | ||||||
| Risk exposure score | Moderately Low | Moderately Low | Moderately low | Moderately Low | ||||||
| Funding structure score | Neutral | Neutral | Neutral | Neutral | ||||||
| SACP/GCP | aa- | aa- | a+ | a | ||||||
| Governance score | Neutral | Neutral | Neutral | Neutral | ||||||
| Liquidity score | Exceptional | Exceptional | Exceptional | Exceptional | ||||||
| Comparable ratings analysis | 0 | 0 | 0 | 0 | ||||||
| Support | 0 | 0 | 0 | 0 | ||||||
| *FSR shown is for Prudential Assurance Co. Ltd. FSR--Financial strength rating. GCP--Group credit profile. IICRA--Insurance Industry And Country Risk Assessment. N/A--Not applicable. SACP--Stand-alone credit profile. Data as of Oct. 31, 2020. | ||||||||||
Table 4
| Peer Group 2: U.K. Life Insurance Peers That Are Part Of Larger Groups And Have FSRs That May Benefit From Group Support | ||||||
|---|---|---|---|---|---|---|
| Company Name | Scottish Widows Ltd. | UNUM Ltd. | ||||
| Sector | Life insurance | Life insurance | ||||
| Financial strength rating | A/Negative | A-/Stable | ||||
| Holding company rating | N/A | N/A | ||||
| Business risk profile | Strong | Satisfactory | ||||
| IICRA score | Low risk | Low risk | ||||
| Competitive position score | Strong | Satisfactory | ||||
| Financial risk profile score | Strong | Satisfactory | ||||
| Capital and earnings score | Strong | Satisfactory | ||||
| Risk exposure score | Moderately Low | Moderately Low | ||||
| Funding structure score | Neutral | Neutral | ||||
| SACP/GCP | a | bbb+ | ||||
| Governance score | Neutral | Neutral | ||||
| Liquidity score | Exceptional | Exceptional | ||||
| Comparable ratings analysis | 0 | 0 | ||||
| Support | 0 | 1 | ||||
| FSR--Financial strength rating. GCP--Group credit profile. IICRA--Insurance Industry And Country Risk Assessment. N/A--Not applicable. SACP--Stand-alone credit profile. Data as of Oct. 31, 2020. | ||||||
Table 5
| Peer Group 3: U.K. P/C Insurance Peers With Strongest FSRs Without Support | ||||||||
|---|---|---|---|---|---|---|---|---|
| Company Name | Lloyd's | Hiscox Insurance Group | RSA Insurance Group | |||||
| Sector | Reinsurance | Reinsurance | P/C insurance | |||||
| Financial strength rating | A+/Stable | A/Stable | A/Watch Neg | |||||
| Holding company rating | N/A | BBB+/Stable | BBB+/Watch Neg | |||||
| Business risk profile | Very strong | Strong | Very strong | |||||
| IICRA score | Intermediate risk | Intermediate risk | Intermediate risk | |||||
| Competitive position score | Very strong | Strong | Very strong | |||||
| Financial risk profile score | Strong | Satisfactory | Satisfactory | |||||
| Capital and earnings score | Excellent | Satisfactory | Satisfactory | |||||
| Risk exposure score | High risk | Moderately low | Moderately low | |||||
| Funding structure score | Neutral | Neutral | Neutral | |||||
| SACP/GCP | a+ | a- | a | |||||
| Governance score | Neutral | Neutral | Neutral | |||||
| Liquidity score | Adequate | Exceptional | Exceptional | |||||
| Comparable ratings analysis | 0 | 1 | 0 | |||||
| Support | 0 | 0 | 0 | |||||
| FSR--Financial strength rating. GCP--Group credit profile. IICRA--Insurance Industry And Country Risk Assessment. N/A--Not applicable. P/C--Property/casualty. SACP--Stand-alone credit profile. Data as of Oct. 31, 2020. | ||||||||
Table 6
| Peer Group 4: U.K. Life Insurance Peers With Less Diversified Or Specialized Business Risk Profile | ||||||||
|---|---|---|---|---|---|---|---|---|
| Company Name | Royal London Mutual Insurance Society Group | St. James's Place PLC | Liverpool Victoria Friendly Society Group | |||||
| Sector | Life insurance | Life insurance | Multiline insurer | |||||
| Financial strength rating | A/Stable | A-/Stable | BBB+/Stable | |||||
| Holding company rating | N/A | N/A | N/A | |||||
| Business risk profile | Strong | Satisfactory | Satisfactory | |||||
| IICRA score | Low risk | Low risk | Low risk | |||||
| Competitive position score | Strong | Satisfactory | Satisfactory | |||||
| Financial risk profile score | Strong | Strong | Strong | |||||
| Capital and earnings score | Very strong | Strong | Excellent | |||||
| Risk exposure score | Moderately high | Moderately low | Moderately high | |||||
| Funding structure score | Neutral | Neutral | Moderately negative | |||||
| SACP/GCP | a | a- | bbb+ | |||||
| Governance score | Neutral | Neutral | Neutral | |||||
| Liquidity score | Exceptional | Exceptional | Exceptional | |||||
| Comparable ratings analysis | 0 | 0 | 0 | |||||
| Support | 0 | 0 | 0 | |||||
| FSR--Financial strength rating. GCP--Group credit profile. IICRA--Insurance Industry And Country Risk Assessment. N/A--Not applicable. SACP--Stand-alone credit profile. Data as of Oct. 31, 2020. | ||||||||
Table 7
| Peer Group 5: U.K. P/C Specialized Insurance Peer Group | ||||||||
|---|---|---|---|---|---|---|---|---|
| Company Name | Ecclesiastical Insurance Group | Flood Re Ltd. | NPA Insurance Ltd. | |||||
| Sector | P/C insurance | Reinsurance | P/C insurance | |||||
| Financial strength rating | A-/Stable | A/Stable | BBB/Stable | |||||
| Holding company rating | N/A | N/A | N/A | |||||
| Business risk profile | Satisfactory | Satisfactory | Fair | |||||
| IICRA score | Intermediate risk | Intermediate risk | Intermediate risk | |||||
| Competitive position score | Satisfactory | Satisfactory | Fair | |||||
| Financial risk profile score | Strong | Strong | Satisfactory | |||||
| Capital and earnings score | Very strong | Very strong | Satisfactory | |||||
| Risk exposure score | Moderately high | Moderately high | Moderately low | |||||
| Funding structure score | Neutral | Neutral | Neutral | |||||
| SACP/GCP | a- | a- | bbb | |||||
| Governance score | Neutral | Neutral | Neutral | |||||
| Liquidity score | Exceptional | Exceptional | Exceptional | |||||
| Comparable ratings analysis | 0 | 1 | 0 | |||||
| Support | 0 | 0 | 0 | |||||
| FSR--Financial strength rating. GCP--Group credit profile. IICRA--Insurance Industry And Country Risk Assessment. N/A--Not applicable. P/C--Property/casualty. SACP--Stand-alone credit profile. Data as of Oct. 31, 2020. | ||||||||
Table 8
| Examples Of Merger And Acquisition Type Transactions In The U.K. Insurance Market In 2020 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Deal Type | Anounced Date | Target Name | Acquirer Name | Seller Name | Announced Total Value (mil. £) | Payment Type | Deal Status | Target Country ISO Code | Acquirer Country ISO Code | Seller Country ISO Code | ||||||||||||||
| 1 | M&A | Oct. 23, 2020 | Retail investment & personal investing business | Fidelity International Ltd | Legal & General Group PLC | N/A | Cash | Pending | GB | GB | ||||||||||||||
| 2 | M&A | Oct. 19, 2020 | Central St Giles General Partner Ltd | Alphabet Inc | Legal & General Group PLC, Mitsubishi Estate Co Ltd | N/A | Undisclosed | Proposed | GB | US | ||||||||||||||
| 3 | M&A | Oct. 14, 2020 | Tesco Underwriting Ltd | Tesco PLC | Ageas SA/NV | 102.96 | Cash | Pending | GB | GB | BE | |||||||||||||
| 4 | M&A | Oct. 14, 2020 | Spectrum Communications Ltd | M&G PLC | N/A | Undisclosed | Pending | GB | GB | |||||||||||||||
| 5 | INV | Oct. 13, 2020 | Bernicia Group Ltd | Legal & General Group PLC | 75.42 | Cash | Completed | GB | GB | |||||||||||||||
| 6 | M&A | Oct. 2, 2020 | RSA Insurance Group plc | Intact Financial Corporation and Tryg A/S | 7,200 | Cash | Proposed | GB | CA & DE | |||||||||||||||
| 7 | INV | Sep. 30, 2020 | Pension Insurance Corp Group Ltd | MP 2019 K2 Aggregator LP | Swiss Re AG,IFS IV Ltd,Crest Success Ltd | 472.12 | Cash | Pending | GB | KY | ||||||||||||||
| 8 | M&A | Sep. 30, 2020 | Rothesay Life PLC | Massachusetts Mutual Life Insurance Co,GIC Pte Ltd | Blackstone Group Inc/The | N/A | Cash | Pending | GB | US | ||||||||||||||
| 9 | M&A | Sep. 14, 2020 | Three office properties/UK | CLS Holdings PLC | Aviva PLC | 59.51 | Cash | Pending | GB | GB | ||||||||||||||
| 10 | M&A | Sep. 11, 2020 | Aviva Ltd | Sumitomo Life Insurance Co,IPGL Holdings Ltd,TPG Capital LP/US (Fund: TPG Strategic Capital Fund LP) | Aviva PLC | 1,543.38 | Cash, stock, and debt | Pending | SG | GB | ||||||||||||||
| 11 | M&A | Sep. 8, 2020 | Aviva France SA | Potential Buyer | Aviva PLC | 2,712.76 | Undisclosed | Proposed | FR | GB | ||||||||||||||
| 12 | INV | Sep. 8, 2020 | Grab Holdings Inc | Prudential PLC,Private Investor,AIA Group Ltd | 279.79 | Cash | Proposed | SG | ||||||||||||||||
| 13 | M&A | Aug. 20, 2020 | World Marine & General Insurance PLC/The | Randall & Quilter Investment Holdings Ltd | BHP Group Ltd | N/A | Undisclosed | Pending | GB | BM | AU | |||||||||||||
| 14 | M&A | Aug. 19, 2020 | Inceptum Insurance Co Ltd | Randall & Quilter Investment Holdings Ltd | Syndicate Holding Corp | N/A | Undisclosed | Pending | GB | BM | PR | |||||||||||||
| 15 | M&A | Aug. 13, 2020 | Britannia Consultants Services Ltd | Global Risk Partners Ltd | N/A | Undisclosed | Completed | GB | GB | |||||||||||||||
| 16 | M&A | Aug. 5, 2020 | Hastings Group Holdings PLC | Sampo Oyj,Rand Merchant Investment Holdings Ltd | 1,246.96 | Cash | Pending | GB | ||||||||||||||||
| 17 | M&A | Aug. 4, 2020 | Civil Service Healthcare Society Ltd | Bupa Insurance Ltd | N/A | Undisclosed | Proposed | GB | GB | |||||||||||||||
| 18 | M&A | Jul. 22, 2020 | Aegon office building/Edinburgh | Mugunghwa Trust Co Ltd,Roebuck Asset Management Ltd | M&G PLC | 133 | Cash | Completed | GB | |||||||||||||||
| 19 | M&A | Jul. 16, 2020 | Friends Provident International Services Ltd | International Financial Group Ltd | Aviva PLC | 258.18 | Cash | Completed | IM | GB | GB | |||||||||||||
| 20 | M&A | Jul. 16, 2020 | Brolly UK Technology Ltd | Direct Line Insurance Group PLC | N/A | Undisclosed | Completed | GB | GB | |||||||||||||||
| 21 | M&A | Jul. 1, 2020 | Architas Multi-Manager Ltd,Architas Advisory Services Ltd | Liontrust Asset Management PLC | AXA SA | 75 | Undisclosed | Pending | GB | FR | ||||||||||||||
| 22 | M&A | Jun. 22, 2020 | UK General Insurance Group Ltd | Primary Group Ltd | JC Flowers & Co LLC | N/A | Cash | Pending | GB | BM | US | |||||||||||||
| 23 | M&A | Jun. 19, 2020 | Financial Guaranty Uk Ltd | Unnamed Buyer | FGIC Corp | N/A | Undisclosed | Completed | GB | US | ||||||||||||||
| 24 | M&A | Jun. 12, 2020 | Liverpool Victoria Friendly Society Ltd | Bain Capital LP | 1,000 | Cash | Proposed | GB | US | |||||||||||||||
| 25 | M&A | Jun. 12, 2020 | Penguin Portals Ltd | Potential Buyer | Admiral Group PLC | 500 | Undisclosed | Proposed | GB | GB | ||||||||||||||
| 26 | M&A | Jun. 8, 2020 | Fleet Place House | M&G PLC | Beijing State-owned Capital Operation and Manageme | 100 | Cash | Proposed | GB | CN | ||||||||||||||
| 27 | M&A | May. 27, 2020 | Ascentrics Consulting Group Inc | M&G PLC | Royal London Group | N/A | Cash | Completed | US | GB | GB | |||||||||||||
| 28 | M&A | May. 26, 2020 | 36-46 St John's Road/Clapham Junction | Unnamed Buyer | Legal & General Group PLC | 24.96 | Cash | Completed | GB | |||||||||||||||
| 29 | INV | May. 19, 2020 | Bikmo Ltd | Hiscox Ltd,Private Investor,Development Bank of Wales Plc | 1.8 | Cash | Completed | GB | ||||||||||||||||
| 30 | INV | May. 19, 2020 | Pinnacle Financial Services Ltd/UK | AmeriLife Group LLC | N/A | Undisclosed | Completed | GB | US | |||||||||||||||
| 31 | M&A | May. 1, 2020 | Three logistics warehouses | Aviva PLC | Next PLC | 107 | Cash | Completed | GB | GB | ||||||||||||||
| 32 | M&A | Apr. 27, 2020 | 400,000 square meter logistics warehouse/Dutch | Aviva PLC | Euro-Rijn International BV | N/A | Cash | Completed | GB | NL | ||||||||||||||
| 33 | INV | Apr. 17, 2020 | Kensa Group Ltd | Legal & General Group PLC | N/A | Undisclosed | Completed | GB | GB | |||||||||||||||
| 34 | M&A | Mar. 27, 2020 | GreyCastle Holdings Ltd | Monument RE Ltd | N/A | Undisclosed | Completed | GB | BM | |||||||||||||||
| 35 | M&A | Mar. 23, 2020 | Kingsbridge Group Ltd | White Mountains Insurance Group Ltd | N/A | Undisclosed | Pending | GB | US | |||||||||||||||
| 36 | M&A | Mar. 20, 2020 | Portfolio of six commercial assets/Netherland | Aviva PLC | Anbang Insurance Group Co Ltd | 642.2 | Cash | Completed | GB | CN | ||||||||||||||
| 37 | M&A | Mar. 18, 2020 | Motor Gap Ltd | Axia Capital Partners LP | N/A | Cash | Completed | GB | US | |||||||||||||||
| 38 | M&A | Mar. 12, 2020 | 20 Churchill Place/London | Brookfield Asset Management Inc | M&G PLC | 300 | Cash | Proposed | CA | GB | ||||||||||||||
| 39 | M&A | Mar. 6, 2020 | Astra Aviva Life PT | Astra International Tbk PT | Aviva PLC | N/A | Undisclosed | Pending | ID | ID | GB | |||||||||||||
| 40 | M&A | Feb. 19, 2020 | Sainsbury's supermarket/Hessle | Supermarket Income Reit PLC | ReAssure Ltd | 34.21 | Cash | Completed | GB | GB | ||||||||||||||
| 41 | M&A | Feb. 12, 2020 | 37,414 square foot building/Mayfair | Hines Interests LP | Aviva PLC | N/A | Cash | Completed | US | GB | ||||||||||||||
| 42 | M&A | Jan. 28, 2020 | Office building 33 Colston Avenue/Bristol | Topland Group Holdings International Ltd | Royal London Mutual Insurance Society Ltd/The | 9.79 | Cash | Completed | GB | GB | ||||||||||||||
| 43 | M&A | Jan. 20, 2020 | Sanctuary Buildings / London | Legal & General Group PLC | Hana Financial Group Inc | 300 | Cash | Proposed | GB | KR | ||||||||||||||
| 44 | INV | Jan. 8, 2020 | ITS Technology Group Ltd | Aviva PLC | 45 | Cash | Completed | GB | GB | |||||||||||||||
| 45 | M&A | Jan. 8, 2020 | WMS Group | Aviva PLC | N/A | Undisclosed | Completed | GB | GB | |||||||||||||||
| M&A--Mergers and investments. INV--Investment. N/A--Not applicable. Source: Bloomberg. | ||||||||||||||||||||||||
Related Research
- UNUM Ltd., Nov. 16, 2020
- RSA Insurance Group PLC Ratings Placed On CreditWatch Negative On Potential Acquisition By Consortium, Nov. 9, 2020
- United Kingdom 'AA/A-1+' Ratings Affirmed; Outlook Stable, Oct. 23, 2020
- Royal London Mutual Insurance Society Ltd., Oct. 22, 2020
- Specialist U.K. Reinsurer Flood Re Ratings Raised To 'A' On Operating Track Record; Outlook Stable, Oct. 7, 2020
- Lloyd's, Oct. 7, 2020
- The Second Wave And Brexit Will Test The U.K. Recovery, Oct. 1, 2020
- M&G PLC, Sept. 29, 2020
- Down But Not Out: Insurers' Capital Buffers Are Proving Resilient In The Face Of COVID-19, Sept. 22, 2020
- Aviva PLC's French Subsidiaries Downgraded To 'A+'; Outlook Negative; All Other Ratings Affirmed With Stable Outlook, Sept. 16, 2020
- Liverpool Victoria Financial Services Ltd., Sept. 9, 2020
- St. James's Place U.K. PLC, July 10, 2020
- Legal & General Group PLC, June 30, 2020
- Ecclesiastical Insurance Office PLC, June 26, 2020
- Hiscox Insurance Co. Ltd., June 23, 2020
- Scottish Widows Ltd. Outlook Revised To Negative; 'A/A-1' Ratings Affirmed, May 22, 2020
- NPA Insurance Ltd., May 21, 2020
- U.K. Property/Casualty, May 12, 2020
- U.K. Life, May 12, 2020
This report does not constitute a rating action.
| Primary Credit Analysts: | Tatiana Grineva, London + 44 20 7176 7061; tatiana.grineva@spglobal.com |
| Robert J Greensted, London + 44 20 7176 7095; robert.greensted@spglobal.com | |
| Secondary Contacts: | Simran K Parmar, London (44) 20-7176-3579; simran.parmar@spglobal.com |
| Liesl Saldanha, London (44) 20-7176-0489; liesl.saldanha@spglobal.com | |
| Research Contributors: | Ruchika Agrawal, Mumbai; ruchika.agrawal@spglobal.com |
| Giulia Filocca, London 44-20-7176-0614; giulia.filocca@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.