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Fighting for life

Deutsche Bank has painted a dim picture for the future of the UK life assurance sector, claiming firms have not faced such a negative playing field when it comes to new business “in living memory”.

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?

Let me know your thoughts by clicking on the link below.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 30th July 2009 at 4:42 pm

    Fighting for life
    It all began with stakeholder pensions back in 2001 and the industry not having had the spine to stand up and say NO.

  2. Perhaps this could be true,in that Fighting for life is not far away.
    As always some interesting comment.

    The facts remain, the world has changed substantially in the Financial Services scene and looks likely to continue.

    Technology is drving matters and those firms that do not ‘get with it’ are doomed. It’s interesting to note that that there is still no automated, wholly inclusive platform for anyone to use, let alone IFA’s.

    Yes I think churn will be affected, however many of the major new Players (the online firms) will also keep the churn rate moving upwards.

    With the RDR and now some focus on the insurers there is great change ahead, and this will be welcomed by a few.

    In order to get our own business ahead of the game we were forced to reconsider all of our options an indeed had to learn a lot in order to secure the future for us and our staff. My thinking is that many IFA’s will ignore this report, ignore the real world in front of them and continute griping.

    Some things will never change.

    Richard Smith
    IFA and Tech Consultant.

  3. Fighting for life
    fewer people will have advise if they drive out adviser ,people do not buy off the shelf and do not understand the need for setting policies in trust or how much cover they require.

  4. I suspect they are right…
    consolidation is inevitable…it is how that matters. Can you share where their source document can be found?

  5. Fighting for life
    I left the UK financial services market in 2003 and moved to New Zealand. I now do work back into the UK with things such as pension transfers. I am still staggered by the antiquated systems and approach taken by many a UK provider company – based on that alone many must be doomed – some even today cannot/will not/are not allowed to use e-mail – wake up!

    Further without doubt the UK financial services professions need to start standing up to both the regulator and the Government and say enough is enough – regulation is simply a big stick which does little to control the system but does an excellent job of “picking” on the small guy without protecting the customer and Government policy is doing nothing to ring in the chages that are now needed. In simple terms this is now the time for fundamental root and branch change to the financial systems, they have patently failed and to keep trying bto use a sticking plaster is inapprorpiate and shows that those in “power” are not capable……and one area of change should be the removal of many financial service elements from the Banks – they do not do the job properlyand should stick to their core buisness. What is needed is more foucs and pro-activity in pointing people at qualified, experienced IFAs who put the client first!

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