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By Marc Shoffman | Published Jun 27, 2012

Annuity rates may fall by 20% due to Solvency II

Richard Baddon, insurance partner for Deloitte, claimed the influence of the European rules could reduce annuity rates by up to 20 per cent.

He said: “There has been a great deal of technical debate and negotiation with the EU about Solvency II.

“A focus for the UK has been the treatment of the ‘matching adjustment’, which affects annuities and the way insurers set reserves and calculate capital.

“The amount that annuity rates will fall by depends on whether there is a favourable outcome to negotiations around the ‘matching adjustment’.

“In any event, insurers may need to change the way they invest their assets and may move from corporate bonds, which give a higher return, to lower-yielding government bonds.”

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