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Lehman warns CGT changes could wipe 10% off life company values

Lehman Brothers says the impact of changes to capital gains tax in the pre-Budget report could wipe up to 10 per cent off the value of life companies.

Insurance analyst Ned Cazalet says the impact could be even worse and says half of all lump-sum new business is under threat following the PBR changes to CGT and the damage they will do to the insurance bond market.

Lehman says Resolution, Standard Life, Legal & General and St James’s Place are most at risk because they are UKfacing and lack the global diversification of Aviva, Old Mut-ual and Prudential. The Lehman note says: “A worst-case total wipeout of in-force and future savings policies would be worth 5-10 per cent of market cap for most companies.”

The UK life industry writes £65bn of lump-sum new business each year and around half of this is bonds business, according to Cazalet. He estimates that the tax changes could also impact on the in-force bonds business which is worth £200bn-£250bn.

Cazalet says: “The impact of this on the life industry is massively greater than on share option schemes or private equity. Either the Government knew what they were doing and are being Machiavellian or they have no idea which begs questions about the competence of people who make legislation.”

L&G wealth policy director Adrian Boulding says: “I think some people have overstated the magnitude of the changes.”

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