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Analysts estimate UK’s with-profits assets at 347bn

UK life companies have combined with-profits assets of around 347bn, according to analysts at Nottingham University Business School.

The university looked at the 20 leading with-profits providers using information made available through their annual returns to the FSA.

This is the first year that realistic balance sheets have been required by the FSA, which the university says removes some of the mystery behind with-profits business.

The research shows that the top 20 firms have surplus realistic assets of 20.7bn – 6.3 per cent more than their realistic liabilities.

Director of the centre for risk and insurance Chris O’Brien says the change represents a move towards greater openness and provides a more realistic reflection of with-profits business.

However, he warns that companies use different assumptions so the new regime does not always reflect companies’ individual situations suitably and care must be taken when comparing them.

O’Brien says where companies have a big surplus of realistic assets, the policyholder does not necessarily receive more in bonuses.

Similarly, he says a relatively low ratio of surplus assets is not necessarily a sign of weakness.

But he says a company with a big surplus of available assets may have extra flexibility, for example, regarding its ability to fund new business growth or invest in equities.

The research also covers the stress tests that the FSA requires companies to carry out to check they can cope with adverse scenarios.

These tests require a further 9.7bn of capital and all the firms surveyed met this requirement.

O’Brien says: “The design and implementation of the new basis of calculations reflects well on the FSA, the industry and their actuaries. Some of the mystery behind with-profits business has now been removed.”

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