The £2.3trn pension risk transfer market in the UK could provide ample opportunity for life insurance companies, according to analysts at JP Morgan.
Its analysts said in a research note on Monday that pension risk transfer “is one of the strongest growth opportunities in European insurance”.
High barriers remain to entering the risk transfer market, which they said is supportive of long-term dividend per share growth.
A slew of insurance firms are expected to release their results for the first half of 2022 this week.
JP Morgan has today upgraded its rating of Legal & General Group PLC (LSE:LGEN), which is due to release its results on Tuesday, to ‘overweight’, given the insurance firm’s “strong gearing” towards the pension risk transfer market.
Despite the potential opportunities that the market holds for insurers, Barclays warned that UK life insurance firms face a ‘balancing act’ between higher rates and higher inflation.
Insurance firms are expected to benefit from higher interest rates, but high inflation continues to pose a challenge, particularly in the field of retail insurance, according to Barclays’ analysts.
“Our outlook for growth in retail insurance is not optimistic considering inflationary pressures on consumers,” Barclays said in a research note today, adding: “We prefer high-yielding insurers with exposure to bulk annuities."
Barclays analysts do not expect the insurance market to collapse; however, as a result of high inflation and the recent rise in claims costs.
“While a recession is not positive for insurers, it is not a big negative either as the sector's earnings gearing into the real economy is limited and late cycle,” its analysts said in a separate research note.
“Solvency ratios up, healthy capital generation and unchanged FY guidance should underpin positive sentiment for the sector.”