In a note to investors, the bank states that consolidation is inevitable but it says it will be driven by factors such as the retail distribution review, personal accounts and solvency II as well as unfavourable tax changes rather than the recession.
The effects of these changes will vary for each insurer depending on its product bias, existing scale and distribution mix but according to Deutsche, Friends Provident and Prudential are the most vulnerable.
It suggests Friends will eventually be forced succumb to a deal with Resolution.
The note states: “Friends Provident is increasingly sub-scale in the UK and in our view looks the least well placed to have a viable stand-alone future.
“Although it is playing hard to get in its negotiations with Resolution, we believe it may ultimately be forced into a merger.”
With regard to Prudential, the bank says: “We do not regard Prudential as a natural bid target per se but its UK position is no better than mid-sized and we think management could be put under pressure to exit from the UK to focus on Asia.”
According to Deutsche, Legal & General and Aviva both face declining sales volumes, particularly in savings and individual pensions, which could result in closed books of business being put up for sale.
It states: “Of the two, we think that Aviva ultimately could have greater upside from doing this given a lower starting value.”
Standard Life is touted as the strongest player in the market.
Across the life sector, the bank predicts IFA sales to plummet and bank sales to shoot up, clearly impacting profits for insurers.
The note says: “There has been industry talk of 30 per cent or even 50 per cent of IFAs exiting the industry post 2012, which is not impossible.
“By implication, overall IFA sales volumes will certainly shrink. Therefore, we see the biggest gainers as being cheaper, basic advice distribution channels such as banks.”
It also expects unfavourable tax changes to seriously impact sales of personal pensions and continue to push down the number of investment bonds being sold.
But Deutsche Bank believes the banning of commission – outlined in the RDR – will reduce the level of churn in existing business, in turn improving the quality and persistency of back books.
What is your view of the future of life assurers? How many firms will make it to 2012? Who do you think will emerge as buyers and who will be snapped up?
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