Britain’s biggest life insurers face a sharp slowdown in their most important profit engine, the contractual service margin (CSM). RBC Capital Markets now projects CSM growth to just 1% a year through 2028, down from 5% between 2022 and 2024, as competition and thin credit spreads bite the pension buyout market.

Competition has intensified as 11 insurers vied for 2025 deals while total industry volumes fell to £40 billion from £48 billion in 2024. Legal & General now faces the steepest headwinds, with RBC forecasting its closing CSM 5% below consensus and pension transfers accounting for more than half of core profit through 2029.

Capital strain remains modest as insurers lean on government‑bond‑based strategies, but the Prudential Regulation Authority plans to raise capital requirements for offshore reinsurance counterparties next quarter. This move could squeeze dividend capacity, with Phoenix Group’s operating cash expected to grow 5% to £1.47 billion and M&G’s profit falling 4% below consensus.

Industry analysts warn that consolidation may follow as firms battle shrinking margins. Investors should monitor regulatory updates and the pace of new pension buyout deals, which will dictate whether insurers can sustain dividend payouts or must redirect capital toward higher‑yield assets in a low‑spread environment.