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FSA warns life insurance industry faces long-term squeeze

The life insurance industry faces a squeeze on profits because people are not buying enough long-term savings products.

In its prudential risk outlook, published today, the Financial Services Authority says the sector was collectively profitable in 2009 but that legislative and regulatory pressures will also hit the industry.

The report says: “UK life insurers face a number of medium to long-term pressures on profitability, including persistently subdued demand for long-term savings products, increased competition from other types of savings and investment products and regulatory and legislative changes.”

The Government is currently consulting on breaking up the FSA and replacing it with the Financial Conduct Authority and the Prudential Regulation Authority which will regulate life companies. The European Insurance and Occupational Pensions Authority has recently been set up in the European Union and will also regulate insurance companies.

New business for the sector is up 5 per cent, but the report says that increased annuity payouts, the decline of with-profits policies and the subdued market for savings products is responsible for a long term decline in net cash flows.

It also warns that lower investment returns due to current low interest rates strengthen the need for prudent underwriting and reserving, though it adds the sector’s capital position is “sound”.

Solvency II will impose capital requirements on the insurance sector and is aimed at aligning regulatory requirements more closely with the risk they are exposed to.

In a speech this morning, Treasury financial secretary Mark Hoban told the Association of British Insurers the requirements should be “proportionate” adding there is still a “long way to go” in the negotiations.

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. Perhaps if the industry is in decline the FSA will also reduce the number of staff.

    The industry is in decline for savings products because regulation has helped kill off the savings culture.

    As many have commented previously you can get a loan for £5,000 with lilttle need for fact finding information to be given etc etc, but to save £50 advisors have to undergo and assault course!

  2. Nothing to do with the regulator and the Government failing to promote savings then?

    All they want to do is regulate till no one want to take any risk at all, whilst everyone else except them take the responsibility when things go wrong or one cannot predict the future.

    What has regulation achieved if it destroys the industry that funds it?

    A very high cost of protection in my view.

  3. The FSA is becoming unbelievable in destroying pensions, savings, protection and the IFA. Even banks are pulling out of the Financial advise model. Is this the wanton destruction of the financial services Industry which is about all the UK has left to offer??
    I just find it is beyond comprehension.

  4. Er…this has been an issue for more than two decades, why the sudden interest?

  5. Well I guess you could say we have been “Hectored”

    All we have to do is define being “Hectored”

  6. And exactly which long term savings plans do they suggest?

    We use ISAs for long term, but how long before the FSA or Politicians change that.

  7. Chris Collier | 17 Mar 2011 3:02 pm

    Aren’t they used for short term and medium term as well!!

  8. A lot of us employed by the life industry on not big wages are very worried and have already experienced 10 years of mass redundancies cost cuts and offshoring.
    The government is also starting to worry that the huge and easy tax take it gets from UK life insurance is drying up…
    It’s a wonder anybody wants to work for an insurance co, but I reckon its a matter of time before the govt shifts its tax target onto Wraps and collectives, after all there won’t be much pension, bond or endowment stuff left to hit.

  9. What an admission, the sector is in terminal decline.
    Does the FSA realise how many people are employed in the Financial services sector and the amount contributed to Gross domestic Products

  10. I wrote to (I think) FIMBRA, warning them not to kill the goose that laid the golden egg. Whe I spoke to the member of staff who rang up about my letter, he neither understood nor cared.

  11. Where have all the profits gone?
    Long term savings,
    Where have all the profits gone?
    Long time ago,
    Where have all the profits gone?
    Gone to bureaucrats, and their chums,
    When will we ever learn?
    When will we ever learn?

  12. In its endless pursuit of perfection, the FSA clearly sees itself as the cure for all the ailments of the industry. But if the cure all but kills the patient, what will have been achieved? The industry is already being squeezed so hard that its pips are bursting out.

    As David Owen once said: “If you try to prioritise everything, you end up prioritising nothing.” To which I would add: And cause chaos in the process. The industry is very close to being in chaos, not to mention at war with its regulator. Yet all the FSA does is drone on endlessly about how the RDR will go ahead as planned, no matter what it’s going to cost and no matter what anyone else might think. Because, of course, the cost is always foisted onto everyne else.

    Amazingly, the FSA actually seems to believe that its RDR has widespread industry support, perhaps believing that a lie told often enough will eventually become accepted as the truth. Why then will it not publish the submissions to its consultation on the RDR, for all to see and to debate? The FSA, after all, proclaims itself to be an open and transparent regulator. What a load of tripe that is.

    Immeasurable and possibly irreparable damage to the UK’s savings cultture was inflicted by the last government. The present government said it would undo much of that damage but so far has failed totally to do so.

    About the only thing worth saving into any more are Unit Trust ISA’s, but the great danger with those is easy access. Pensions have pretty well had it, which is why what we really need is a Retirement ISA with no annuity trap at the end of it.

    But, with the exception of the TSC, which doesn’t actually have any power, no one seems to be listening.

  13. And whose fault is that Mr Sants?

  14. Would it be that there is more money to be made by the banks to fund big bonuses by increasing debt ? rather than have a population save ?

    I have certainly seen over the years regular premiums into anything drop year on year.

    There is always a higher force at work, what was the RBS bonus figure just quoted 345 million in bonuses given to 324 people !!!! in 2010

    Compound that with the little tax banks pay on profits because they can offset so much makes you spit

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