articles Ratings /ratings/en/research/articles/220914-savings-gain-greater-allure-for-u-k-insurers-12493488 content esgSubNav
In This List

Savings Gain Greater Allure For U.K. Insurers


Is The Global Reinsurance Sector About To Turn A Corner?


Research Update: QBE Lenders' Mortgage Insurance 'A' Ratings Affirmed, Outlook Stable


After Bermudian Re/insurers' Half Decade Of Underperformance, Are Better Days Ahead?


S&P Global Ratings Top 40 Global Reinsurers And Reinsurers By Country: 2022

Savings Gain Greater Allure For U.K. Insurers

The U.K. savings sector comprises an estimated £4 trillion in assets and savings now form a growing part of many life insurers' portfolios. Insurers appreciate the capital-light features of their savings propositions, and the relatively stable fee income they bring in. Nevertheless, U.K. insurers have been losing ground to other asset managers in this space for some time.

Investment managers typically benefit from a wider range of offerings at competitive prices, a broader distribution network through digital services, and frequent customer engagement. According to The Investment Association, the proportion of assets managed by retail bank- and insurance-owned groups has fallen to 27% of industry assets in 2020, from 35% in 2010 and 52% in 2008. Stand-alone investment managers now manage 42% of total assets, up from 37% in 2010.

Chart 1


Several long-standing trends are enabling growth in the already-flourishing savings market, increasing the allure of the sector over the medium-to-long term. These include:

  • The increase in retail investor base and demand for wealth and retirement products;
  • The shift in retirement funding to the private sector from government; and
  • The cost-of-living crisis--although this increases nondiscretionary household expenditure, it could also encourage households to prioritize savings.

In addition, rising interest rates could now somewhat ease the pressure on investment returns. There has been a tentative return to offering products that incorporate a limited form of policyholder protection, such as inflation or capital guarantees. These are designed to appeal to savers who are grappling with soaring inflation and choppy financial markets.

Chart 2


The forecast decline in savings rates, combined with the current fear of recession, may impede growth over the coming years. Over the long term, only a few will attain meaningful market share at supportive margins.

High Returns, Low Costs, But Only At Scale

Traditional U.K. insurance products require material capital commitments and are most profitable given a higher return on assets (ROA). It is therefore unsurprising that U.K. insurers are attracted by the low capital requirements and growth potential of the U.K. savings market. Several of the large U.K. insurers--such as L&G, M&G, and Aviva--are already significant players in this market.

A material proportion of insurers' savings assets under management sit in defined contribution (DC) pensions and this offers incentives to insurers to cultivate their presence in the savings sector. DC pensions remain the dominant pension product offered by U.K. employers in their open schemes. Here, insurers benefit from their ability to offer other group benefits, which makes them a one-stop shop for employers. This gives insurers access to opportunities in the savings sector and the ability to cross- and upsell into their insurance, wealth, and retirement products. We therefore expect to see insurers expand their presence in the savings sector via bolt-on acquisitions, such as M&G PLC's acquisition of Ascentric, or through partnerships, such as that between Aviva and Wealthify. Several insurers now offer, or are in the process of launching, individual savings accounts and model portfolios to increase their appeal to advisors.

Many households hoarded cash during the pandemic lockdowns. This, combined with rising wages and the tax benefits associated with these DC pension products, could encourage savers to make higher contributions to pension schemes. That said, considering the rise in the cost of living, inflationary pressures may limit workers' ability to fully convert higher earnings into savings or investments.

Insurers Have Been Late Movers In This Market

Most insurers have been unable to make major inroads into the savings industry, given the fierce competition they face from other financial service providers. We anticipate that this will continue to depress profitability over the medium term in this volume-driven sector.

Meanwhile, asset managers and investment platforms have been gaining ground. They offer more varied and cost-effective products, in part because savings and investments are their sole strategic focus, which encouraged early investment. The difference between insurers and their competitors is particularly obvious in the retail market, where customers have come to expect digital offerings and ancillary services like smartphone apps, DIY-based platforms, and general investment accounts. Insurers also lag their competitors in terms of brand recall for this market. Banks, especially, also benefit from their branch networks, which help them gain and retain customers' deposits. As interest rates rise, banks could become even more of a competitive threat.

In preparation for Solvency II, insurers had moved away from guaranteed offerings, wary of the risks associated with such capital-intensive products. Increased regulatory capital requirements, combined with the prolonged period of low interest rates, created further disincentives to invest. Today, however, insurers benefit from increasing interest rates and enhanced risk management frameworks, which can help them to better manage risks associated with such products. We consider that these factors make insurers more likely to consider reintroducing guaranteed products into their portfolios.

Some U.K. insurers are offering products with additional protection features, in order to stand out in the crowded retail savings market. Capital or inflation guarantees, or smoothed funds, would appeal to consumers looking to protect their savings from the ongoing market rout and inflationary pressures. Products such as these could help insurers bring in more recurring revenue, at higher margins. For example, some insurers, such as Royal London and LV, have been gradually testing demand for fixed annuities.

Insurers are likely to be more willing to take on the associated capital risk of products with light protection features now, because they will be easier to manage while interest rates are rising. To the extent that the higher risk is managed without causing a deterioration in insurers' financial profiles, we consider that savings products are unlikely to erode the insurance sector's credit stability. That said, given the past challenges, we expect insurers to remain cautious when pursuing growth in guaranteed products and to aim to keep capital requirements down. In our view, life insurers have a good understanding of the interest rate sensitivity of their products, and the value of the options and guarantees they offer to clients.

Expanding Beyond Pensions Proves Tough

U.K. insurers are firmly entrenched in the DC workplace pensions market, holding about 75% of the total market. We expect insurance companies to maintain their grip in corporate pensions, by virtue of being able to provide adjacent group benefit covers such as group life and critical illness. That said, insurers have had mixed success in retaining savers at the point of retirement, because they have limited wealth planning and product offerings compared with other investment platforms.

The savings sector provides a third leg to insurers' risk and asset management operations and insurers could distinguish their propositions by offering elements of investor protection such as guarantees. The balance between managing the financial strain from the strategic investments needed to build these operations and deriving profitable margins from them will be key to determining the impact on creditworthiness.

This report does not constitute a rating action.

Primary Credit Analyst:Simran K Parmar, London + 44 20 7176 3579;
Secondary Contacts:Liesl Saldanha, London + 44 20 7176 0489;
Ali Karakuyu, London + 44 20 7176 7301;
Additional Contact:Insurance Ratings EMEA;

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 acknowledgement 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 nonpublic 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, (free of charge), and (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

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back