OREANDA-NEWS. The outcome of the Brexit referendum and of two major regulatory investigations are the key remaining uncertainties for UK life insurers in 2016 as the impact of Solvency II and new pension legislation have become clearer, Fitch Ratings says.

The industry is facing intense scrutiny from the Financial Conduct Authority, which is investigating a number of firms' treatment of long-standing customers and has also launched a review of potential mis-selling of annuities. These investigations could both be negative for individual firms if they result in either negative publicity or significant compensation costs or fines.

A Leave vote in June's referendum would add operational and regulatory complexity for UK insurers active in the EU but should ultimately be manageable. A more immediate impact could be via insurers' balance-sheet exposure to potential extra volatility in financial markets.

Overall, however, our rating outlook for the sector is stable, reflecting the diverse business mix of firms and their strong capital positions. This has helped them withstand the decline in the individual annuity market following rule changes that removed a requirement for most retirees to buy an annuity.

The latest results from the sector show annuity sales have stabilised and we believe the market may have reached a new equilibrium. Lost individual annuity sales will also be partially offset by further growth in the bulk annuities market, which we expect will expand significantly in the next five years.

The sector's results have also provided clarity on capital ratios under the Solvency II framework, which have generally been strong and in line with our expectations. The announced ratios are not directly comparable between firms because there are many differences in the way they calculate the numbers, but they should become easier to compare from 2017 when further disclosure will be required.