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&#39Big names fighting to maintain capital base&#39

Leading analyst Ned Cazalet has painted a gloomy picture of the life industry, with many major names struggling to maintain their capital base in his influential Life 2002 report.

Cazalet says the excess assets of with-profits offices had fallen to £40bn at the start of the year and claims that due to stockmarket falls, this has since eroded to zero.

Looking at specific firms, Cazalet characterises Friends Provident as the Oliver Twist of the life industry for wanting to return to the market a year after flotation to raise more money and improve its weak capital position. Life says the falling stockmarkets have wiped away the £1bn raised by its demutualisation last year.

On Axa, Cazalet says its restrictions on with-profits sales “will help limit the damage of poor investment markets on their combined capital bases, it is not very clear as to what the drivers for profitable growth might be”.

While Legal & General is praised for its clear strategy, Cazalet says it “looks to be a bit short of the folding stuff to us and further, in terms of new business, the acquisition costs ratios appear to be uncomfortably high and sure must impede profitability”.

On Norwich Union, Cazalet says there is a conflict between its plans to increase its market position while its capital base has taken a hammering. Standard Life is savaged for its dogged adherence to equities.

Cazalet also questions Zurich Financial Services&#39 strategy, saying that it is unlikely that IFAs will rush to sign up to its networks.

Friends Provident spokeswoman Di Skidmore says: “Ned takes a more simplistic view compared with us and the rest of the City. We are not shy about raising money for a particular purpose and will continue to make opportunistic investments in IFAs.”

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