The market reaction to reports the FCA is to launch an inquiry into closed book life and pensions policies has been “overdone”, say Barclays analysts.
The regulator is to start its review into policies sold in the 1970s, 1980s and 1990s this summer, and is concerned customers are locked into poor investments by steep exit fees, reports the Telegraph.
Resolution’s share price has fallen by 14 per cent off the back of the news, from 306p per share at the start of trading today to 276p per share.
Life office Resolution bought Friends Provident Group in 2009, the majority of the Axa UK life insurance business in 2010 and Bupa Health Assurance in 2011. These were rebranded together to form the Friends Life Group.
In a research note, Barclays analysts Alan Devlin and Chris Roberts say the market reaction to Resolution and the sector has been “overdone”.
But it notes the reaction is likely to be down to a combination of the review, the dramatic pension reforms announced in last week’s Budget and the 0.75 per cent cap on auto-enrolment charges announced by the Government yesterday. The cap will come into force from April next year.
Devlin and Roberts say: “We believe today’s announcement is a red herring, as in our view, it would be naive to think that after 14 years, IFAs have not already tried to churn these policies.
“The policies outstanding today are either likely to have guarantees which are valuable in today’s interest rate environment, or they have terminal bonuses which are maturing soon and are valuable to the customer, and this business is maturing anyway over the next few years.
“In our view, the back books which are more at risk are the aggressive business written pre-RDR by the commission players.”