Axa is pulling out of the enhanced annuity market, claiming that Solvency II will red- uce the attractiveness of annuities for product providers and customers.
Axa began piloting an enhanced product two years ago. The sector is dominated by Just Retirement, Partnership and Canada Life.
Last week, Axa emailed advisers, stating that draft Solvency II rules that require insurers to hold more capital have prompted it to leave the sector.
Axa says steps will be taken to close the product to new business at the “earliest opp- ortunity”. It says: “New EU governing rules around Solvency II are due to be introduced in 2012. These rules are expected to require annuity providers to hold more capital in reserve.
“As a result of the uncert- ainty that this will create for the attractiveness of annuities for customers and providers, we have decided to end the pilot of our enhanced annuity product. This decision has been taken following a lengthy and thorough review.”
Axa stopped accepting new quotations last week.
The Retirement Adviser director of retirement planning Nick Flynn says: “Axa was really making a mark in this market so this is a real shock.
The news is the first tangible problem caused by Solvency II but it will not be the last.
“Not only will annuities be of less interest to insurers, it will also reduce rates further, making them less attractive to clients. It will be interesting to see if other providers follow suit.”