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Legal & General kicked off the life sector’s interim results season on Tuesday and some general trends have been developing since.

The first trend that seems to have emerged across a number of players is a significantly improved capital position.

Some life assurer’s IGD surplus numbers were looking pretty grim at year-end. But, just as the FTSE has bounced back in the past six months, so have insurers’ capital positions it seems.

L&G announced it had boosted its IGD surplus to £1.9bn at June before adding £300m of qualifying lower tier 2 debt securities in July, bringing the total to £2.2bn.

This compares favourably to the £1.8bn figure reported at H1 2008.

Old Mutual boosted its group pro-forma financial group directive surplus to £1bn compared with £700m at year-end 2008.

Axa also said it had strengthened capital and Aviva revealed that it has increased its IGD surplus to £3.2bn compared with the £2bn figure reported in its year-end results.

Fitch Ratings senior director David Prowse says: “Regulatory capital is similar or generally up a bit, reflecting a lot of derisking or in some cases insurers selling off certain bits of business. So IGD surplus numbers are generally heading upwards it seems.”

This has been boosted by another trend – dividend cuts. Both L&G and Aviva slashed their interim dividend – by 45 per cent and 31 per cent respectively – as widely speculated. Old Mutual maintained its decision not to pay an interim dividend.

But Standard Life bucked this one, boosting its half-year dividend by 2 per cent to 4.15p, citing healthy cash flow.

As reported by Money Marketing, Aviva is looking to take advantage of the flurry of consolidation expected in the life sector while other providers have suggested they will not be partaking in any mergers or acquisitions, preferring to grow organically.

Chief executive Andrew Moss said: “I am absolutely determined that Aviva should be in a position where it will have the financial flexibility to take advantage of any opportunities that may come. We want to be in a position where we have choice and we can take action because there is real value to be reaped for our shareholders.”

Prowse says: “It seems in some cases insurers are building up their IGD surplus further perhaps as some kind of war chest to exploit opportunities when they arrive. There is a growing feeling that that is the case.

“But it is a question of timing. No one is going to want to do anything right now that is going to really hit their capital and bring it right down again. But the companies that have build up IGD surplus, if markets recover further, will only see capital heading upwards.”

New business sales figures are down quite significantly across the board, but generally in line with expectations.

Another trend that seems to have developed, according to Prowse, is a flight to perceived quality with some of the bigger players taking extra market share over the period.

He says: “Market share numbers seem to be moving around quite a bit. Aviva said its UK life market share is up and it looks as if L&G is also up overall. But if some are up, some are clearly down. I think generally we are seeing more of what was already starting to show up which is a flight to perceived quality.

“The bigger supposedly safer names seem to be the winners. We are on the lookout for losers because it means if and when we are through the worst of it they come out of this with a reduced franchise.”

What are your views on the life sector results so far? Do you think they are out of the dark? If you would like to comment, click on the link below.

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  1. Capital city
    As an IFA who, like many many others, hardly uses any of the traditional big providers for anything but pure protection any more, I wonder how relevant to us these results may be. In a way, I wish it wasn’t so, as the products of big household names should be easier to recommend to clients than those from lesser known rivals. But service levels and trust have declined over the past 15 years to such chronic levels, we really have no choice. It seems that the chasm between the big providers and the once supportive IFA sector has grown so wide that now it’ll never be bridged. Each of us is going our separate way.

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